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/raid1/www/Hosts/bankrupt/TCR_Public/041227.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, December 27, 2004, Vol. 8, No. 284 Headlines AIR CANADA: WestJet Sues for "Abuse of Judicial System" AMERICAN AIRLINES: Closes New $850 Million Credit Facility AMERICAN BUILDERS: Moody's Removes Low-B Ratings After Redemption AMERISOURCEBERGEN: Cuts 2005 Earnings Estimate to $4.10 Per Share AMERISTAR CASINOS: Completes Mountain High Casino Acquisition ARES LEVERAGED: Fitch Upgrades $65 Mil. Subordinated Secured Notes ARMSTRONG WORLD: Makes Technical Modifications to Chapter 11 Plan ASPEN VALLEY: Fitch Downgrades Revenue Bonds Rating to 'BB-' BANC OF AMERICA: Fitch Puts Low-B Ratings on Six Mortgage Certs. BARON CAPITAL: Case Summary & 20 Largest Unsecured Creditors BELDEN & BLAKE: S&P Revises Outlook on Low-B Ratings to Negative BIG 5 CORP: S&P Revises Outlook on Low-B Ratings to Positive CAITHNESS COSO: Fitch Upgrades $303 Million Sr. Notes to 'BBB' CATHOLIC CHURCH: Spokane Asks Court to Okay Interim Fee Procedure CHURCH & DWIGHT: Closes $250 Mil. Sale of 6% Sr. Sub. Notes CMS ENERGY: Moody's Ups Ratings As Company Trims Debt Load COMM 2002-FL6: Moody's Pares Rating on Class M-JP Certs. to Ba1 DII/KBR: Gets Court Nod for Trust Payment Calculation Method DLJ COMMERCIAL: S&P Ups Ratings on $5.8M Class B-4 Certs. to BB+ E*TRADE ABS: Portfolio Deterioration Cues Moody's to Pare Ratings ENRON CORP: Wants to Modify Liquidation Incentive Pool EPIGENX PHARMACEUTICALS: Case Summary & 20 Unsecured Creditors EQUIFIN INC: Subsidiary Timely Repays $20 Mil. Wells Fargo Loan FAIRFAX FINANCIAL: Completes Cash Tender Offer & New Note Issue FEDERAL-MOGUL: Needs Judge Wolin's Dec. 10, 2001, Order Clarified FINDLAY UNIVERSITY: Moody's Revises Ratings Outlook to Stable FLORIDA HOUSING: Moody's Revises Ratings Outlook to Negative GMAC COMMERCIAL: Fitch Junks $6.6 Mil. 2000-C1 Mortgage Cert. GREAT AMERICAN: Voluntary Chapter 11 Case Summary GUITAR CENTER: S&P Places Low-B Ratings on CreditWatch Positive HARBORVIEW MORTGAGE: Moody's Puts Ba2 Rating on Class B-4 Certs. HEALTHEAST: Fitch Affirms 'BB+' Rating on Revenue Bonds INTERLINE BRANDS: S&P Upgrades Corporate Credit Rating to BB- JACUZZI BRANDS: S&P Revises Outlook on Low-B Ratings to Positive J. CREW GROUP: S&P Revises Outlook on Low-B Ratings to Positive KITCHEN ETC: Judge Walsh Approves Amended Disclosure Statement KMART CORP: FTC Review of Sears Merger to Expire in January LAIDLAW INTL: Moody's Reviewing Low-B Ratings & May Upgrade LAIDLAW INT'L: To Hold Annual Shareholders' Meeting on Feb. 8 LORAL SPACE: Plan Solicitation Period Extended to Jan. 11 MANUEL'S I-10 AUTO: Case Summary & 20 Largest Unsecured Creditors MENLO WORLDWIDE: S&P Upgrades Ratings from BB+ to AAA MERISEL INC: Nasdaq Denies Company's Appeal & Delists Common Stock MERISEL INC: Deloitte & Touche Resigns as Auditors MET-COIL SYSTEMS: Wants Court to Formally Close Ch. 11 Proceeding MILLENNIUM CHEMICALS: Fitch Issues Low-B Ratings on Debt MKP CBO: Moody's Junks Class C-1 & Class C-2 3rd Priority Notes MORGAN STANLEY: Fitch Issues Low-B Ratings on Six Mortgage Certs. MRH ENTERPRISES: Case Summary & 20 Largest Unsecured Creditors NEXTWAVE TELECOM: Modifies Plan & Disclosure Statement NORTH AMERICAN: Cordes & Company Approved as Accountants NORTH AMERICAN: Gets Final Okay to Use Lender's Cash Collateral OWENS CORNING: Wants to Set Up Protocol for Asbestos PD Claims PAXSON COMMUNICATIONS: Moody's Has Long-Term Liquidity Concerns PENN TRAFFIC: Files Amended Plan & Disclosure Statement PHOTOWORKS INC: Discloses $6.5 Million Recapitalization Plan PORTAL SOFTWARE: Nasdaq Threatens to Delist Common Stock PORTER SQUARE: Moody's Puts Ba3 Rating to Preference Shares RAINBOW MEDIA: S&P Places Low-B Ratings on CreditWatch Positive RED HAT: Reports $10.8 Mil. Net Income for 3rd Quarter 2004 RELIANT ENERGY: Fitch Lifts Ratings on Three Layers of Debt RESTRUCTURED ASSET: S&P Puts BB Ratings on Seven Cert. Classes SARATOGA ASSOCIATES: Case Summary & Largest Unsecured Creditor SEROLOGICALS CORP.: Raises $105 Million in Public Stock Offering SFBC INTERNATIONAL: Completes PharmaNet Merger SI GROUP, L.P.: Case Summary & 20 Largest Unsecured Creditors STRATEGIC SIGN COMMUNICATION: Voluntary Chapter 11 Case Summary STRATUS TECHNOLOGIES: S&P Affirms B Corporate Credit Rating TECH DATA: Moody's Revises Outlook on Low-B Ratings to Stable TENET HEALTHCARE: Settles Patient Litigation at Redding Medical TERRA: Fitch Says Miss. Chemical Purchase Has No Rating Impact TEV INVESTMENT PROPERTIES: Voluntary Chapter 11 Case Summary THINK AGAIN: Whole Living Wants Chapter 11 Trustee Appointed TIAA STRUCTURED: Moody's Reviewing Ratings & May Downgrade TRANSPORTADORA DE GAS: Fitch Releases Report on Debt Exchange TRW AUTOMOTIVE: Completes $1.7 Billion Credit Pact Refinancing UAL CORP: Judge Wedoff Says No to Special Agent for Retired Pilots UAL CORP: Retired Pilots Assoc. Wants to Conduct Discovery US AIRWAYS: Cost-Savings Ratification to Cut $137 Million Annually USGEN CORP: Sells Hydro Assets to TransCanada for US$505 Million VERTIS INC: Obtains New $200 Million Revolver with GE and BofA VICORP RESTAURANTS: Reports $700K Net Loss for 4th Quarter 2004 VIRGINIA EQUINE: Moody's Affirms B2 Rating on $15.7M Bonds VIVENDI UNIVERSAL: Plans to Redeem Outstanding High Yield Notes WEIRTON STEEL: Trustee Wants to Terminate Sale Agreement with DNI WESCO DISTRIBUTION: Moody's Lifts Senior Unsecured Rating to B1 WESTAR ENERGY: Debt Reduction Plan Cues Fitch to Revise Outlook * BOND PRICING: For the week of December 20 - December 24, 2004 ********* AIR CANADA: WestJet Sues for "Abuse of Judicial System" ------------------------------------------------------- In the Ontario Superior Court of Justice, WestJet (TSX:WJA) filed a lawsuit against Air Canada and three of Air Canada's top executives (past and present) for abuse of the judicial system. The Statement of Claim can be reviewed at the Ontario Superior Court of Justice in Toronto. WestJet serves 24 Canadian cities and eight U.S. cities and is publicly traded on the Toronto Stock Exchange under the symbol WJA. CN$30,000,000 Claim WestJet seeks CN$25,000,000 in damages against Air Canada for abuse of process, intentional interference with economic interest and conspiracy, and CN$5,000,000 in punitive damages and costs. "Competition is one thing, but the use of litigation as a stalking horse to advance other avenues of attack, for the purpose of eliminating a competitor, is another," WestJet said in a 16-page Statement of Claim. WestJet faces a CN$220,000,000 suit by Air Canada for alleged corporate espionage. WestJet asserts that Air Canada's legal action was solely intended to destroy WestJet as competitor. "[T]he plan was for Air Canada to destroy WestJet and then have the Canadian market to itself, at which point Air Canada could return to its former pricing policies and seek to gain profitability," WestJet said. According to WestJet, Air Canada knew all along that a WestJet employee was accessing its Web site. Air Canada, however, chose not to terminate the access and allowed that employee to see purportedly confidential information so Air Canada will have a basis later on to initiate legal action against WestJet. The suit also named as defendants: * Air Canada's defunct subsidiary, Zip Air, Inc., * CEO Robert Milton, * former chief restructuring officer Calin Rovinescu, and * Vice-President Stephen Smith Mr. Smith has served as president of WestJet from 1999 to 2000. Mr. Rovinescu resigned from Air Canada in April 2004. Air Canada Says WestJet Lawsuit Meritless Air Canada issued this statement in response to WestJet's announcement that it had filed a lawsuit against Air Canada and three of its executives (past and present) for abuse of the judicial system. "WestJet's action is without merit, and the statement of claim describes no viable cause of action. The action is nothing more than an attempt to divert attention from the evidence recently filed with the court that demonstrates that senior WestJet executives knew about and were involved in WestJet's massive misuse of Air Canada's confidential information over a period of one year, and from Air Canada's ongoing lawsuit to recover the loss of revenue caused by WestJet's unlawful activity. There is no basis for WestJet's allegations and Air Canada will vigorously contest the action in Court. Air Canada filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and filed a Section 304 petition in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Mr. Justice Farley sanctioned Air Canada's CCAA restructuring plan on Aug. 23, 2004. Sean F. Dunphy, Esq., and Ashley John Taylor, Esq., at Stikeman Elliott LLP, in Toronto, serve as Canadian Counsel to the carrier. Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. On September 30, 2004, Air Canada successfully completed its restructuring process and implemented its Plan of Arrangement. The airline exited from CCAA protection raising $1.1 billion of new equity capital and, as of September 30, has approximately $1.9 billion of cash on hand. AMERICAN AIRLINES: Closes New $850 Million Credit Facility ---------------------------------------------------------- American Airlines has successfully completed the closing of a new $850 million credit facility, replacing its $834 million revolving-credit facility which was due to mature next year. Citigroup and J.P. Morgan acted as joint lead arrangers and book runners of the transaction. The successful placement of the new $850 million facility, the principal of which is payable over a six-year period, was supported by Merrill Lynch, Credit Suisse First Boston and Goldman Sachs, who served as documentation agents on the facility. "The replacement of our credit facility is another important step in building a stronger future for American Airlines under our Turnaround Plan," said James Beer, Senior Vice President and Chief Financial Officer of American. "We were able to accomplish this transaction one year ahead of the facility's maturity date because of the strong support we received from our banks, a very positive response from new investors, and the important progress that our employees have made in transforming our company into a stronger, more vibrant competitor." American also received support from other key financial institutions, including CIT, UBS, WestLB and Calyon, who served as senior managing agents for this transaction. "We are very pleased by this result, which demonstrates the confidence that the capital markets have in our business plan," Mr. Beer said. About American Airlines American Airlines is the world's largest carrier. American, American Eagle and the AmericanConnection regional carriers serve more than 250 cities in over 40 countries with more than 3,800 daily flights. The combined network fleet numbers more than 1,000 aircraft. American's award- winning Web site, AA.com, provides users with easy access to check and book fares, plus personalized news, information and travel offers. * * * As reported in the Troubled Company Reporter on Dec. 1, 2004, Standard & Poor's Ratings Services assigned its 'B+' bank loan rating and its '1' recovery rating to an $850 million amended and restated senior secured credit facility available to AMR Corp. subsidiary American Airlines Inc. (B-/Stable/--). AMERICAN BUILDERS: Moody's Removes Low-B Ratings After Redemption ----------------------------------------------------------------- Moody's Investors Service has withdrawn the ratings of American Builders & Contractors Supply Co., Inc. The company's redeemed all of its outstanding 10.625% senior subordinated notes for $64.7 million in accrued interest. These ratings have been withdrawn: * $100 million 10.625% senior subordinated notes, previously rated B3; * Senior Implied, previously rated Ba3; * Issuer Rating, previously rated B2. American Builders & Contractors Supply Co., Inc., headquartered in Beloit, Wisconsin, operates over 270 distribution centers across 43 states. AMERISOURCEBERGEN: Cuts 2005 Earnings Estimate to $4.10 Per Share ----------------------------------------------------------------- AmerisourceBergen Corporation (NYSE:ABC) reduced its fiscal year 2005 estimate for diluted earnings per share from continuing operations to $4.00 to $4.10 from $4.20 to $4.30 due to lower than anticipated pharmaceutical price increases, fewer product deals from manufacturers and reduced alternate source purchases in the December quarter. The Company expects diluted earnings per share from continuing operations in the December quarter to be between $0.60 and $0.65. The Company continues to expect operating revenue growth in fiscal year 2005 to be flat, reflecting the loss of two large customers in fiscal 2004. "Our current estimates for diluted earnings per share from continuing operations indicate we will not meet our expectations for the December quarter primarily due to buy-side shortfalls," said R. David Yost, AmerisourceBergen's Chief Executive Officer. "Our confidence in our revised estimate for fiscal year 2005 diluted earnings per share from continuing operations is due to our continued expectation for a low double-digit pharmaceutical industry growth rate, including price appreciation of approximately 5 percent in the remainder of the fiscal year; lower interest expense from recent refinancings; the impact of our stock repurchase program; and benefits from profitability and growth initiatives in the pharmaceutical distribution business, such as our Optimiz(TM) asset optimization program. "Although these are challenging times for AmerisourceBergen and the industry, the future remains bright, with generic opportunities ahead, the implementation of the Medicare Modernization Act in 2006, and the evolution to fee-for-service contracts with manufacturers. Assuming projected market growth, we expect to return to our long-term diluted earnings per share growth from continuing operations of 15 percent in the September 2005 quarter." Discontinued operations for the December quarter and the fiscal year will reflect the October sale of AmerisourceBergen's Rita Ann cosmetics distribution business. The Company will record a loss of an approximately $6 million, net of tax, on the sale in the December quarter. About AmerisourceBergen AmerisourceBergen(R) (NYSE:ABC) is one of the largest pharmaceutical services companies in the United States. Servicing both pharmaceutical manufacturers and healthcare providers in the pharmaceutical supply channel, the Company provides drug distribution and related services designed to reduce costs and improve patient outcomes. AmerisourceBergen's service solutions range from pharmacy automation, bedside medication safety systems, and pharmaceutical packaging to pharmacy services for skilled nursing and assisted living facilities, reimbursement and pharmaceutical consulting services, and physician education. With more than $48 billion in operating revenue, AmerisourceBergen is headquartered in Valley Forge, Pennsylvania, and employs more than 14,000 people. AmerisourceBergen is ranked #22 on the Fortune 500 list. For more information, go to http://www.amerisourcebergen.com/ * * * As reported in the Troubled Company Reporter on Dec. 14, 2004, Moody's Investors Service placed the ratings of AmerisourceBergen Corporation (Ba2 senior implied) under review for possible upgrade due to continued debt reduction, reduced reliance on external liquidity sources and expectations of good free cash flow generation relative to debt. Moody's believes that improved financial flexibility -- achieved through sustained debt reduction -- would help to offset the transition to a new business model and the loss of two key contracts. Further, the establishment of a new unsecured bank facility will be considered in this review. As reported in the Troubled Company Reporter on Dec. 7, 2004, Standard & Poor's Ratings Services raised its rating on AmerisourceBergen Corp.'s senior unsecured debt to 'BB+' from 'BB', equalizing it with the corporate credit rating (BB+/Positive/--), which was affirmed. The senior unsecured debt is no longer considered materially disadvantaged in the capital structure due to the removal of security under the company's new $700 million bank agreement, although the accounts receivable facility is still secured. The bank loan rating was withdrawn, as the new facility is not rated. In connection with the bank refinancing, the company is retiring a $180 million term loan. In addition, the company is calling the $300 million of convertible securities due 2008 for redemption in December 2004. As reported in the Troubled Company Reporter on Aug. 17, 2004, Fitch Ratings has affirmed AmerisourceBergen Corp.'s 'BBB-' rated senior unsecured debt and bank credit facility and 'BB+' rated subordinated debt following the company's announcement that it has received board authorization to repurchase $500 million in company stock. The Rating Outlook is Stable. AMERISTAR CASINOS: Completes Mountain High Casino Acquisition ------------------------------------------------------------- Ameristar Casinos, Inc., (Nasdaq: ASCA) completed the acquisition of Mountain High Casino in Black Hawk, Colorado. The transaction adds the largest casino in Colorado to Ameristar's portfolio and increases the company's geographic diversification. Ameristar acquired the property from Windsor Woodmont Black Hawk Resort Corp., which was operating as debtor-in-possession in a Chapter 11 case before the United States Bankruptcy Court for the District of Colorado. The purchase price was approximately $117 million in cash, plus the issuance of 58,943 shares of Ameristar's common stock valued at $2.5 million. Ameristar intends to invest approximately $90 million in capital expenditures to improve the competitiveness of the property. The capital improvements include reconfiguring and expanding the gaming area, introducing cashless slot technology and other gaming equipment upgrades, constructing a 300-room AAA Four Diamond- quality hotel and additional covered parking, upgrading the food and beverage outlets and adding a casual dining restaurant. All of these improvements are expected to be completed during 2005, with the exception of the hotel, which is expected to be completed by early 2007. The company plans to rebrand the property as Ameristar Black Hawk once the first phase of enhancements is complete. As with all Ameristar properties, Ameristar Black Hawk will offer a state-of- the-art gaming floor, a wide range of high-quality dining and entertainment venues and outstanding guest service. "We are excited to complete the acquisition of Mountain High Casino," said Craig H. Neilsen, Chairman and CEO of Ameristar. "Mountain High is a high-quality property with an excellent location in one of the major gaming markets in the United States. We are eager to begin our enhancement and expansion plans for the property immediately. The acquisition will not impact our ability to continue our cash dividend policy or to pursue other development opportunities." Mountain High Casino is an upscale gaming and entertainment facility located in the center of the Black Hawk gaming district, approximately 40 miles west of Denver. The 425,000 square-foot facility includes a 57,000 square-foot casino with approximately 1,000 slot machines and 24 table games (including poker). In addition, the property features a steak and seafood restaurant, a buffet and food court, a 5,000 square-foot entertainment showroom that seats approximately 500 people and a parking garage with space for approximately 800 vehicles, among other amenities. * * * As reported in the Troubled Company Reporter on March 5, 2004, Standard & Poor's Ratings Services revised its outlook on Ameristar Casinos, Inc., to positive from stable. At the same time, Standard & Poor's affirmed its 'BB-' corporate credit rating and other ratings on the company. The Las Vegas, Nevada-based casino owner and operator had $718 million in debt outstanding at Dec. 31, 2003. ARES LEVERAGED: Fitch Upgrades $65 Mil. Subordinated Secured Notes ------------------------------------------------------------------ Fitch Ratings affirms two classes and upgrades four classes of Ares Leveraged Investment Fund II, L.P. These rating actions are effective immediately: -- $282,500,000 senior secured revolving credit facility affirmed at 'AA'; -- $185,000,000 senior secured notes affirmed at 'AAA'; -- $70,000,000 first senior subordinated secured notes upgraded to 'A+' from 'A'; -- $110,000,000 second senior subordinated secured notes upgraded to 'BBB+' from 'BBB'; -- $40,000,000 subordinated secured notes upgrade to 'BB+' from 'BB' -- $25,000,000 junior subordinated secured notes upgrade to 'B+' from 'B'. Ares II is a market value collateralized debt obligation -- CDO -- that closed on Oct. 15, 1998. The fund is managed by Ares Management II, L.P., which is headquartered in Los Angeles and is a subsidiary of Ares Management L.L.C. Ares Management maintains a strategic relationship with Apollo Advisors. At inception, the investment manager targeted a portfolio of approximately 40% high yield securities, 25% performing bank loans and 35% mezzanine and special situation assets. As of Nov. 30, 2004, valuation date, the asset mix consisted of 25% high yield securities, 49% performing bank loans and 26% mezzanine and special situation assets. Ares II continues to improve as evidenced by the increase in its overcollateralization -- OC -- levels. The senior OC test, which covers the outstanding amounts under the senior credit facility and senior secured notes, have increased from a ratio of 134.5% at the Oct. 31, 2003, valuation date to 158.5% at the Nov. 30, 2004, valuation date. The OC levels for the first senior subordinated notes, second senior subordinated notes, subordinated notes and junior subordinated notes have increased from 124.9%, 112.9%, 111.8% and 111.2% at the Oct. 31, 2003, valuation date to 143.6%, 126.4%, 123.7% and 122.2% at the Nov. 30, 2004, valuation date. The increase in OC levels occurred even as Ares II distributed $10 million to the preference shareholders on Sept. 30, 2004. Fitch performed discounted market value analysis at varying advance rate stresses and determined that the notes were well covered under the most punitive discounted collateral scenarios. Fitch has had discussions with Ares Management, rated 'CAM2' by Fitch, regarding the current state of the portfolio and the credit quality of individual assets. The conservative management of the portfolio relative to the initial target asset mix, the comfortable cushion of the OC tests, and the track record and experience of Ares Management II were also considered in the analysis. As a result of this analysis, Fitch has determined that the ratings assigned to the senior secured revolving credit facility and the senior secured notes still reflect the current risk to noteholders, while the first senior subordinated notes, second senior subordinated notes, subordinated notes and junior subordinated notes no longer reflect the current risk to noteholders and have subsequently improved. In addition, the 'AAA' ratings of the senior secured notes are based upon an insurance agreement provided by Financial Security Assurance, Inc. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, and also available at Fitch web site. ARMSTRONG WORLD: Makes Technical Modifications to Chapter 11 Plan ----------------------------------------------------------------- Armstrong World Industries, Inc., has filed technical modifications to its Fourth Amended Plan of Reorganization. The Amended Plan include minor changes to the Asbestos PI Trust Agreement's provision on the Compensation and Expenses of Trustees, and the Asbestos PI Trust Distribution Procedures' provision on Claims Liquidation, Resolution of Prepetition Liquidated PI Trust Claims, Valuation Factors and Punitive Damages. A copy of the Notice outlining the Technical Modifications is available at no charge at: http://bankrupt.com/misc/Notice_Technical_Amendment_to_Plan.pdf A copy of the Fourth Amended Plan, as modified, is available at no charge at: http://bankrupt.com/misc/Amended_Plan.pdf A copy of the Asbestos PI Trust Agreement, as modified, is available at no charge at: http://bankrupt.com/misc/Modified_Asbestos_PI_Trust_Agreement.pdf A copy of the Asbestos PI Trust Distribution Procedures, as modified, is available at no charge at: http://bankrupt.com/misc/Modified_Asbestos_PI_TDP.pdf Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company and its debtor-affiliates filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 70; Bankruptcy Creditors' Service, Inc., 215/945-7000) ASPEN VALLEY: Fitch Downgrades Revenue Bonds Rating to 'BB-' ------------------------------------------------------------ Fitch Ratings downgrades and removes from Rating Watch Negative these revenue bonds for Aspen Valley Hospital District Pitkin County, Colorado to 'BB-' from 'BBB'. -- $6.03 million revenue bonds, series 2001; -- $8.09 million revenue bonds, series 2000 The Rating Outlook is Stable. The 'BB' category ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time. However, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. Aspen Valley Hospital District also has approximately $11 million of variable-rate demand bonds backed by a letter of credit from Zions First National Bank, which Fitch does not rate. The rating downgrade reflects Aspen Valley Hospital's extremely light liquidity position, poor accounts receivable management, sizeable operating losses, and recent management and staff turnover. In addition, the hospital is in violation of certain financial covenants per the reimbursement agreement between it and Zions First National Bank, the letter of credit -- LOC -- provider on the outstanding variable rate debt. At Oct. 31, 2004, the hospital's days cash on hand -- DCOH -- and cash to debt positions were extremely low at 18.3 days and 8.9%, respectively, which are well below Fitch's 'BBB' medians and are dramatically reduced since Fitch's last review in April 2004. The precipitous decline in liquidity is attributed primarily to the payment of deferred accounts payable in the current year and one- time severance costs related to the reduction of 30 employees. Another contributing factor to Aspen Valley's weak liquidity position is its poor accounts receivable management. Despite a large accounts receivable write-down in fiscal 2003, days in accounts receivable remained high at 98 days at Oct. 31, 2004. Operating income in fiscal years 2002 and 2003 was negative $2 million and negative $6.7 million, respectively. At the time of Fitch's last review, the fiscal 2002 audit results reflected a $684,000 operating profit. During the fiscal 2003 audit review, the 2002 financial results were restated by the hospital's new auditor to adjust for increases in bad debt expense and uncollectible accounts receivable. An additional $5 million reserve for uncollectible accounts receivable was recorded in fiscal 2003, reducing unrestricted net assets and net patient revenues and contributing to a negative 1.0 times maximum annual debt service coverage -- MADS -- by EBITDA. The negative MADS coverage triggered a debt service coverage violation per the master trust indenture. In addition, the low liquidity and weak fiscal 2003 financial results triggered three covenant violations per the reimbursement agreement between the hospital and LOC provider, including the hospital's covenant to maintain a minimum cash reserve of at least 50 DCOH, a debt service coverage calculation above 1.35x, and a debt to capitalization ratio below 50%. Fitch notes the hospital is no longer in violation of its debt service coverage covenants but that it remains in violation of its DCOH and debt to capitalization covenants. Each covenant violation allows the LOC provider to exercise certain remedies, including the right to initiate a mandatory tender on the outstanding variable rate bonds. Although the LOC provider has currently waived its right to initiate a mandatory tender, there is no guarantee it will continue to do so and Fitch believes a mandatory tender would negatively affect fixed rate bondholders. The LOC provider has exercised its right to appoint a consultant and its right to charge the default rate on the LOC fee, which is 2.75%. Since Fitch's last review, the CEO and CFO positions have been filled, which Fitch views favorably. The new management team is focused on improving core operations and has a plan in place that would bolster liquidity. Although Fitch views this plan positively, Fitch believes the new management team will be challenged with repairing physician, employee, and payor relations and believes significant improvement to the balance sheet will be a slow process. In addition, Fitch notes the operating mill levy that has subsidized historical operating losses requires voter reauthorization in November 2005. Primary credit strengths include Aspen Valley's strong market share, favorable payor mix, and operating improvement through the interim period. Through the ten months ended Oct. 31, 2004, income from operations was breakeven when including $2.4 million in proceeds from the operating mill levy and MADS coverage by EBITDA improved to a solid 3.5x. Aspen Valley Hospital is a 25-bed critical access hospital located in Aspen, Colorado. Total revenue in fiscal 2003 was $45.7 million. Aspen Valley covenants to provide bondholders quarterly information within 30 days after quarter end and annual audited financials within 180 days of the fiscal year-end. Historical disclosure to Fitch has been weak; however, the current management team has improved its disclosure to Fitch with quarterly financial information including balance sheet, income statement, and utilization statistics. In addition, the most recent audited and quarterly reports are now posted on the hospital's website at http://www.avhaspen.org/which Fitch views favorably. BANC OF AMERICA: Fitch Puts Low-B Ratings on Six Mortgage Certs. ---------------------------------------------------------------- Banc of America Commercial Mortgage Inc., series 2004-6 commercial mortgage pass-through certificates are rated by Fitch Ratings: -- $42,300,000 class A-1 'AAA'; -- $193,677,000 class A-2 'AAA'; -- $220,804,000 class A-3 'AAA'; -- $35,443,000 class A-4 'AAA'; -- $35,645,000 class A-AB 'AAA'; -- $237,402,000 class A-5 'AAA'; -- $56,200,000 class A-J 'AAA'; -- $956,589,348 class XC* 'AAA'; -- $927,083,000 class XP* 'AAA'; -- $19,131,000 class B 'AA'; -- $9,566,000 class C 'AA-'; -- $17,936,000 class D 'A'; -- $9,566,000 class E 'A-'; -- $14,349,000 class F 'BBB+'; -- $9,566,000 class G 'BBB'; -- $13,153,000 class H 'BBB-'; -- $5,979,000 class J 'BB+'; -- $4,783,000 class K 'BB'; -- $4,783,000 class L 'BB-'; -- $3,587,000 class M 'B+'; -- $3,587,000 class N 'B'; -- $4,783,000 class O 'B-'; -- $14,349,348 class P 'NR'. *Notional Amount and Interest Only Classes A-1, A-2, A-3, A-4, A-AB, A-5, A-J, XP, B, C, and D are offered publicly, while classes XC, E, F, G, H, J, K, L, M, N, O, and P are privately placed pursuant to Rule 144A of the Securities Act of 1933. The certificates represent beneficial ownership interest in the trust, primary assets of which are 79 fixed-rate loans having an aggregate principal balance of approximately $956,589,348, as of the cutoff date. For a detailed description of Fitch's rating analysis, please see the Report titled 'Banc of America Commercial Mortgage Inc., Series 2004-6' dated Dec. 7, 2004, available on the Fitch Ratings web site at http://www.fitchratings.com/ BARON CAPITAL: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------ Lead Debtor: Baron Capital Properties 3570 U.S. Highway 98 North Lakeland, Florida 33809 Bankruptcy Case No.: 04-24463 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Baron Capital Trust 04-24465 Type of Business: The Debtor is a real estate broker. Chapter 11 Petition Date: December 21, 2004 Court: Middle District of Florida (Tampa) Judge: Alexander L. Paskay Debtors' Counsel: Jerome D. Frank, Esq. Frank & Frank P.C. 30833 Northwestern Highway, Ste. 205 Farmington Hills, MI 48334 Tel: 248-932-1440 Total Assets Total Debts ------------ ----------- Baron Capital Properties $13,171,742 $2,092,258 Baron Capital Trust $594,494 $2,098,887 A. Baron Capital Properties' 9 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Income Investors II, Ltd. $1,278,974 c/o Robert Hardles 15855 Farmington Rd. Livonia, MI 48154 Florida Income Investors, Ltd. $733,050 15855 Farmington Rd. Livonia, MI 48154 Baron Mortgage Devt. Fund XII, Ltd. $26,848 15855 Farmington Rd. Livonia, MI 48154 Baron Mortgage Devt. Fund XXXIV, L.P. $17,661 Baron Mortgage Devt. Fund XXXVI, L.P. $16,802 Baron Mortgage Devt. Fund XXXVIII, L.P. $5,087 Gamble Hartshorn Johnson Co., LPA $1,498 CSC $234 Office Depot $54 B. Baron Capital Trust's 11 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Income Investors II, Ltd. $1,278,974 c/o Robert Hardles 15855 Farmington Rd. Livonia, MI 48154 Florida Income Investors, Ltd. $733,050 15855 Farmington Rd. Livonia, MI 48154 Baron Mortgage Devt. Fund XII, Ltd. $26,848 15855 Farmington Rd. Livonia, MI 48154 Baron Mortgage Devt. Fund XXXIV, L.P. $17,661 Baron Mortgage Devt. Fund XXXVI, L.P. $16,802 Baron Strategic Investment $12,050 Fund VII, Ltd. Baron Mortgage Devt. Fund XXXVIII, L.P. $5,087 Legge, Farrow, Kimmit, et al. $4,308 American Stock Transfer & Trust $1,500 Gamble Hartshorn Johnson Co., LPA $1,498 Shepard, Fillburn Goodblatt, P.A. $1,110 BELDEN & BLAKE: S&P Revises Outlook on Low-B Ratings to Negative ---------------------------------------------------------------- Standard & Poor's Rating Services affirmed its 'B' corporate credit rating on independent oil and gas company Belden & Blake Corp. and revised its outlook to negative. At the same time, Standard & Poor's reduced the rating on Belden's $192.5 million senior secured debt (second lien) to 'CCC+' from 'B-', and reduced its recovery rating to '4' (25% to 50% recovery of principal) from '3'. As of Sept. 30, 2004, North Canton, Ohio-based Belden had roughly $291 million of debt. "The rating actions follow the announcement that Belden will incur negative reserve revisions of 25 billion cubic feet equivalent (bcfe) to 50 bcfe to its Dec. 31, 2003, proved reserves, and further reserve declines of 18 bcfe," said Standard & Poor's credit analyst Paul B. Harvey. "These revisions result from the failure to replace 2004 production, as the company's drilling efforts focused on the conversion of proved undeveloped reserves to proved developed," he continued. The reserve decline of up to 68 bcfe materially weakened the asset coverage provided for the first- and second-lien debt and leaves some concern about future reserve declines, which resulted in their rating downgrade. In addition, the reserve revisions and announced resignations of Belden's new management within six months of the close of Belden's merger with Capital C Energy LLC, gives Standard & Poor's pause as to the ability of Belden to meet the business and financial objectives outlined to Standard & Poor's. If reserves continue to erode due to further negative reserve revisions or a failure to replace production, ratings would likely be lowered. The negative outlook reflects concerns that there may be further negative revisions, particularly given Belden's high cost structure, or that future production replacement may be inadequate to maintain Belden's reserve base. If Belden fails to maintain reserves or the new management team finds it needs to take a more aggressive approach to reserve replacement, via acquisitions or elevated exploration spending from levels expected after the merger with Capital C, to the detriment of debt repayment, ratings could be lowered. BIG 5 CORP: S&P Revises Outlook on Low-B Ratings to Positive ------------------------------------------------------------ Standard & Poor's Ratings Services revised its outlook on El Segundo, California-based sporting goods retailer Big 5 Corp. to positive from stable. Ratings on the company, including the 'B+' corporate credit rating, were affirmed. The company's $131 million 10.875% senior unsecured notes were redeemed in December 2004, and the rating on them was subsequently withdrawn. "The outlook change reflects Big 5's consistent same-store sales gains, improving credit measures, and a stronger financial profile," said Standard & Poor's credit analyst Kristi Broderick. "The ratings reflect the company's regional concentration and the intense competition in the sporting goods retailing industry." Competition in the sporting goods industry is intense, and Big 5 competes with traditional sporting goods stores, mass merchandisers, specialty sporting goods stores, and sporting goods superstores. Competitive pressure likely will increase in the long term because of increased consolidation in the industry. With significant regional concentration in the West -- where the company is the leading sporting goods retailer, with 300 stores -- Big 5 is exposed to regional economic and event risks. About 60% of its store base is in California, and its four most heavily concentrated states account for 85% of its store base. Big 5 has a record of steady sales and earnings growth, which reflects good execution of its operating strategies. Same-store sales consistently have increased during the past few years, with this measure rising 2.2% in 2003 and 4.0% in 2002. Increased customer traffic and positive comparisons across the product mix, especially in apparel, contributed to 2.6% same-store sales growth in the third quarter ended Sept. 26, 2004. Operating margins have been consistent over the past few years, at about 15%. In October 2004, the company declared a dividend for the first time, of about $6.5 million per year. Credit protection measures have strengthened over time and are strong for the rating: EBITDA coverage of interest was 3.6x and total debt to EBITDA was 3.1x for the 12 months ended Sept. 26, 2004. Funds from operations to total debt was also strong for the rating category, at about 23%. Interest expense should decrease, as Big 5 has redeemed all of its remaining 10.875% senior notes due 2007, primarily with drawings under its revolving credit facility and borrowings under a new $20 million term loan, which was provided by an amendment to the existing credit facility. CAITHNESS COSO: Fitch Upgrades $303 Million Sr. Notes to 'BBB' -------------------------------------------------------------- Fitch Ratings has upgraded and removed from Rating Watch Positive the rating on Caithness Coso Funding Corp.'s $303 million senior secured notes due 2009 to 'BBB' from 'BB+'. The outstanding amount on the notes is approximately $222 million. Fitch placed the notes on Rating Watch Positive in November 2004 following the restructuring of the contract with the U.S. Navy that extends from 2009 to 2034 Coso's exclusive rights to the geothermal resource and reduces royalty payments. While several factors are expected to enhance financial performance to a level consistent with the lowest investment grade rating, the assigned rating incorporates Fitch's belief that Coso's owners will supply additional capital in the event a payment default on the notes appears imminent. With the extension of the Navy contract, Coso is expected to initiate previously planned capital improvements designed to stabilize the geothermal resource and enhance long term energy production. The project sponsors were hesitant to initiate certain of these improvements until the extension was executed since the payback period surpassed the 2009 contract expiration. The majority of expenditures will be incurred by the end of 2006, when cash flows are more predictable due to fixed energy pricing. After April 2007, contractual energy pricing reverts to the prevailing short run avoided cost -- SRAC, which is indexed to natural gas prices. Revenues from additional energy production, combined with the reduction in royalty payments, lessen Coso's vulnerability to decreases in SRAC pricing. Projected debt service coverage ratios -- DSCRs -- average 1.6x through 2006, and 1.5x between 2007 and the final maturity of the notes in 2009. Fitch considers SRAC prices to be the primary risk to cash flow. In a hypothetical scenario in which SRAC falls to four cents/kWh after 2006, corresponding to $3 per mmBtu natural gas under the current SRAC formula or an equivalent modification to the formula, DSCRs fall to 1.3x. If a severe decline in SRAC or other unforeseen events erode cash flow, Fitch believes that Coso's owners will contribute capital to preclude a payment default. A payment default is more likely to occur after the fixed energy price period expires due to volatility in SRAC prices. Annual debt service is approximately $55 million during the final three years of the notes maturity and Coso is unlevered after 2009. Accordingly, even a permanent reduction in the asset's economic value will likely provide Coso's owners with significant free cash flow after the debt matures. Although the project sponsors have no contractual obligation to support the project, Fitch believes that the economics will justify voluntary support. It is worth noting that the counterparty rating of Southern California Edison (senior unsecured notes rated 'BBB' by Fitch) is considered a constraint on the rating of Coso, as the project relies upon SCE as its sole source of revenue. This constraint is not currently active, as the assigned rating reflects Coso's financial performance on a stand alone basis. However, in the event SCE's credit quality falls below Coso's stand alone credit quality, it is likely that the rating on Coso's notes will be downgraded accordingly. Coso is a special-purpose funding vehicle formed to issue senior secured notes on behalf of the Coso partnerships, the owners of the Coso projects. The Coso projects consist of three interlinked 80 MW geothermal power plants, transmission lines, steam gathering systems and other ancillary facilities located at the Navy Weapons Center in Inyo County, California. All electric energy and capacity is sold to SCE under three long-term power purchase agreements expiring after the rated debt matures. Coso pays royalties to the U.S. Navy and the Bureau of Land Management for use of the geothermal resource. Through its subsidiaries, Caithness Energy LLC exercises management control over Coso and performs operations and maintenance services for the project. CATHOLIC CHURCH: Spokane Asks Court to Okay Interim Fee Procedure ----------------------------------------------------------------- The Diocese of Spokane seeks to establish a procedure for paying and monitoring the interim compensation due from the estate on a monthly basis. By reviewing the amounts requested on a monthly basis rather than every 120 days, Spokane believes that it, the United States Trustee, and creditors and other parties-in-interest will be in a better position to monitor and control the costs and fees of estate professionals on a current basis. The Diocese also notes that the various Professionals already have devoted and will be required to devote substantial time, effort, money, and expense to its case. The absence of a procedure permitting payment of interim compensation on a monthly basis may cause undue financial burdens on the Professionals, unfairly compel the retained Professionals to finance the Chapter 11 case, or discourage other Professionals, whose services Spokane might require, from accepting or continuing employment in this case. Therefore, Spokane asks Judge Williams to approve its proposed procedure for awarding interim compensation and reimbursement of expenses to all Professionals. Proposed Procedure On or before the 25th day of each month commencing January 2005, and continuing every calendar month after that, each Professional seeking interim compensation for services provided in the previous calendar month will submit a monthly statement by first class U.S. Mail and also by facsimile to: (a) The Diocese of Spokane 1023 W. Riverside, P.O. Box 1453 Spokane, Washington 99210-1453 Attn: Mike Miller Facsimile: 509-358-7302 (b) Proposed Counsel for the Diocese Paine, Hamblen, Coffin, Brooke & Miller, LLP 717 W. Sprague Avenue, Suite 1200 Spokane, Washington 99201 Attn: Michael J. Paukert Facsimile: 509?838?0007 (c) The Office of the United States Trustee 593 U.S. District Courthouse 920 W. Riverside Avenue Spokane, Washington 99201 Attn: Gary Dyer Facsimile: 509-353-3124 (d) The 20 largest unsecured creditors, unless a statutory Committee is appointed and the U.S. Bankruptcy Court for the Eastern District of Washington approves counsel for the Committee. Each Monthly Statement will contain a detailed itemization of each service provided and identify the person who provided the service, the time expended by the person who provided the service, the date the service was provided as well as a detailed list of the disbursements and costs made and incurred by the Professional in connection with the services provided. The Notice Parties who receive a Monthly Statement will have 14 calendar days after receipt by facsimile to serve notice of any objection to the Monthly Statement. If no objection is timely served, then the Monthly Statement will be deemed approved on an interim basis and Spokane will pay 80% of the fees and 100% of the expenses described in each Monthly Statement. If an objection is timely served by one or more Notice Parties, then Spokane, nevertheless, is authorized to pay the appropriate percentage of those undisputed amounts requested in the Monthly Statement. In the event one or more of the Notice Parties objects to the compensation or reimbursement sought in any particular Monthly Statement, the objecting Notice Parties will, within 14 calendar days of receipt of the facsimile copy of the Monthly Statement, serve on (i) the Professional whose statement is being objected to, and (ii) the other Notice Parties, a written Notice of Objection to Monthly Statement, an Affidavit or Declaration setting forth the precise nature of the objection and the amount at issue. The objecting party or parties and the Professional whose Monthly Statement is being objected to will attempt to reach an agreement regarding the correct payment to be made. If the parties are unable to reach an agreement on the objection within 14 calendar days after receipt of the objection, the Professional whose Monthly Statement is being objected to will have an option of: (a) filing a request for payment of the disputed amount with the Court, along with a copy of any objection; or (b) foregoing payment of the disputed amount until the next interim fee application hearing, at which time the Court will consider and dispose of the objection if payment of the disputed amount is requested. Spokane will be authorized to pay any portion of the fees and disbursements requested in a Monthly Statement that is no longer the subject of a Notice of Objection to Fee Statement if the objection has been withdrawn. Additionally, the pendency of a disputed Monthly Statement or the entry of an order that a payment of compensation or reimbursement of expenses was improper as to a particular Monthly Statement will not disqualify a Professional from future payment of compensation or reimbursement of expenses, unless otherwise ordered by the Court. The first Monthly Statement may be submitted on or before January 25, 2005, and will cover the period from the Petition Date through December 31, 2004. Payments made to Professionals are not subject to disgorgement unless the fees or expenses of the Professionals are disallowed under Section 330 or 331 of the Bankruptcy Court. Within 30 days after the end of each four-month period, commencing with the period that ends April 5, 2005, each Professional who has elected to serve and submit a Monthly Statement or is otherwise seeking interim compensation will file with the Court, and serve on the Notice Parties, an interim fee application with a summary of the activities of the Professional, in accordance with Section 331, Rules 2002(a)(6) and 2016 of the Federal Rules of Bankruptcy Procedure, and Rule 2016-1(b) of the Local Rules of the U.S. Bankruptcy Court for the Eastern District of Washington. The Interim Application will seek approval of 100%, including the 20% held back from monthly payments, of the requested interim compensation and reimbursement of expenses made pursuant to Monthly Statements submitted during the prior four-month period. Within 10 days following the last day for filing Interim Applications with respect to a particular four-month period, Spokane's reorganization counsel will file with the Court and serve on the Notice Parties and those persons and entities entitled to notice, a notice concerning the Interim Application that complies with Local Bankruptcy Rule 2016-1(a). The Court will hold the hearing on the first Interim Application in February 2005. The Court will hold a hearing on Interim Applications for each subsequent four-month periods on a date not less than 30 days after the last date on which any Professional gives notice, with the date being fixed at the hearing on the Interim Application for the prior four-month period. Spokane's counsel will make reasonable attempts to coordinate the scheduling of all hearings on Interim Applications and related notice requirements. At these hearings, any party-in-interest who has timely filed a written objection will be entitled to be heard on its objection, as will the Professional whose fees or expenses are the subject of the objection. If an objection is sustained, or the Court otherwise orders, the applicant will disgorge to Spokane any payments it may have received for fees or costs with respect to which an objection is sustained. If an objection is not sustained and the fees or expenses are approved, Spokane will be promptly pay any unpaid amount. In connection with the administration of Spokane's estate, Spokane may, from time to time, seek to employ attorneys, accountants, and other professionals for a finite period of time or for a limited purpose. In those instances, the persons may be employed on terms and conditions different from those set forth in these procedures, including, without limitation, on a retainer, a fixed hourly fee, or contingent basis. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq., and William N. Stiles, Esq., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. The Roman Catholic Church of the Diocese of Tucson filed for chapter 11 protection (Bankr. D. Ariz. Case No. 04-04721) on September 20, 2004, and delivered a plan of reorganization to the Court on the same day. Susan G. Boswell, Esq., and Kasey C. Nye, Esq., at Quarles & Brady Streich Lang LLP, represent the Tucson Diocese. The Roman Catholic Church of the Diocese of Spokane filed for chapter 11 protection (Bankr. E.D. Wash. Case No. 04-08822) on Dec. 6, 2004. Michael J. Paukert, Esq., at Paine, Hamblen, Coffin, Brooke & Miller, LLP, represents the Spokane Archdiocese in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $11,162,938 in total assets and $81,364,055 in total debts. (Catholic Church Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 215/945-7000) CHURCH & DWIGHT: Closes $250 Mil. Sale of 6% Sr. Sub. Notes ----------------------------------------------------------- Church & Dwight Co., Inc.(NYSE:CHD) announced that it closed its offering of $250 million of 6.00% Senior Subordinated Notes due 2012 in a private placement. The notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Concurrent with the completion of the offering, Church & Dwight accepted for purchase the $218.6 million aggregate principal amount of its 9 1/2% Senior Subordinated Notes due 2009, originally issued by Armkel, LLC and Armkel Finance, Inc., that were tendered pursuant to Church & Dwight's tender offer commenced on November 22, 2004. Church & Dwight Co., Inc., manufactures and markets a wide range of personal care, household and specialty products, under the ARM & HAMMER brand name and other well-known trademarks. * * * As previously reported in the Troubled Company Reporter on, Dec. 13, 2004, Standard & Poor's Ratings Services assigned a 'B+' debt rating to Church & Dwight Company Inc.'s planned $175 million senior subordinated notes due 2012. The notes will be used to help refinance $225 million of Armkel LLC's senior subordinated notes. Church & Dwight acquired full ownership of Armkel in May 2004. As a result, the 'B+' rating on Armkel's $225 million senior subordinated notes due 2009 was withdrawn. In addition, Standard & Poor's affirmed its ratings on Princeton, New Jersey-based Church & Dwight, including its 'BB' corporate credit rating. Approximately $853 million of pro forma debt is outstanding. As previously reported in the Troubled Company Reporter on, Dec. 10, 2004, Moody's Investors Service assigned a Ba3 rating to the proposed $175 million senior subordinated notes to be issued by Church & Dwight, Inc. -- CHD. Along with cash balances, the notes issuance will be used to refinance the $225 million senior subordinated notes of Armkel, LLC, which CHD fully-acquired earlier this year. Existing senior unsecured and senior subordinated debt ratings have been upgraded by one notch, to Ba2 and Ba3, respectively. In addition, CHD's Ba2 senior implied and senior secured debt ratings were affirmed and the ratings outlook was revised to positive from stable. The rating action reflects CHD's steady operating performance during fiscal 2004, as well as the prospective benefits of the refinancing transaction, which reduces the company's funded debt levels and cash interest expense needs. CMS ENERGY: Moody's Ups Ratings As Company Trims Debt Load ---------------------------------------------------------- Moody's Investors Service upgraded the ratings of CMS Energy Corporation, including its Senior Implied rating to Ba3 from B2, senior unsecured debt to B1 from B3, subordinated debt to B3 from Caa2, and preferred stock to Caa1 from Ca. Moody's also upgraded CMS' Speculative Grade Liquidity rating to SGL-2 from SGL-3. In addition, Moody's assigned a Ba3 rating to CMS' $300 million secured bank credit facility. This action concludes the review of CMS' ratings for possible upgrade. The rating outlook is stable. The upgrade of CMS' ratings reflects these factors: (1) continued debt reduction at the parent level, which has increased financial flexibility; (2) a lower business risk profile following the divestiture of a number of non-regulated businesses; (3) a narrower focus for its operations in the U.S. on its lower risk regulated utility subsidiary, Consumers Energy Company (Consumers: Baa3 senior secured); (4) a meaningful improvement in the liquidity profile of the parent company. The company has sold a substantial portion of its non-core assets including certain non-utility electric generation, gas transmission, oil & gas and commodity trading assets. The asset divesture program has produced proceeds of approximately $2.6 billion in the past three years and has enabled the company to meet its maturing debt obligations, pension funding requirements and significantly improve its cash position. As of September 30, 2004, the company had approximately $560 million of unrestricted cash on its balance sheet. In recent months, the company has further improved its balance sheet by repaying approximately $190 million of maturing parent level debt and reducing overall financing costs by refinancing approximately $800 million of higher coupon debt at Consumers. The company successfully executed a common stock offering in October, deriving proceeds of approximately $288 million. These proceeds are expected to be infused as equity into Consumers in order to bolster the utility's balance sheet. Additionally, the parent company issued $288 million of senior unsecured convertible debt in early December. Proceeds from this offering will be expected to redeem debt that comes due in 2005. Moody's expects the company to continue to strengthen Consumers' balance sheet while reducing leverage at the parent through proceeds from any remaining non-core asset sales and cash flow. The rating action also incorporates our expectation that Consumers' cash flow will increase over the next several years due to anticipated rate increases. On December 17, 2004, Consumers' filed a rate case with the Michigan Public Service Commission requesting a base rate increase of $320 million. Moody's notes, however, that the company will continue to be challenged by high capital expenditure requirements associated with environmental upgrades at Consumers' fossil fuel generation facilities. The upgrade of CMS' Speculative Grade Liquidity rating to SGL-2 from SGL-3 reflects a good liquidity profile over the next 12 months that is supported by substantial cash balances, and expected cash dividends available to the parent from its regulated and non-regulated businesses that provide sufficient coverage of fixed charges at the parent level. It also considers the benefits of the company's debt reduction program that should allow it to be comfortably in compliance with the covenant provisions under its $300 million committed revolving credit facility. Currently, about $90 million is utilized under this facility, which matures in August 2007. CMS Energy is a diversified energy holding company headquartered in Jackson, Michigan. Its principal subsidiaries are Consumers Energy and CMS Enterprises. Consumers Energy is a public utility that provides natural gas and electricity to almost 6 million of Michigan's 10 million residents in the state's Lower Peninsula counties. Through various subsidiaries, CMS Enterprises is engaged in energy businesses in the United States and in selected international markets. COMM 2002-FL6: Moody's Pares Rating on Class M-JP Certs. to Ba1 --------------------------------------------------------------- Moody's Investors Service upgraded the rating of one class, downgraded the ratings of three classes and affirmed the ratings of four classes of COMM 2002-FL6, Commercial Mortgage Pass-Through Certificates as follows: * Class A-2, $80,000,000, Floating, affirmed at Aaa * Class X-2, Notional, affirmed at Aaa * Class C, $40,500,000, Floating, upgraded to Aaa from Aa3 * Class H-WM, $13,500,000, Floating, downgraded to A3 from A2 * Class L-LP, $1,500,000, Floating, affirmed at Baa2 * Class M-LP, $1,700,000, Floating, affirmed at Baa3 * Class K-JP, $600,000, Floating, downgraded to Baa2 from Baa1 * Class M-JP, $1,030,000, Floating, downgraded to Ba1 from Baa3 The Certificates are collateralized by five mortgage loans, which range in size from 5.1% to 43.4% of the pool based on current principal balances. As of the December 15, 2004, distribution date, the transaction's aggregate Certificate balance has decreased by approximately 62.8% to $255.6 million from $687.7 million at closing as a result of the payoff of six loans initially in the pool. The loans are interest only. Classes A-2, X-2, and C are pooled classes while Classes H, K, L, and M depend upon the performance of a specific loan for debt service and ultimate repayment. The performance of the collateral properties has been mixed with two performing in-line with Moody's expectations and three performing below Moody's expectations. Moody's current weighted average loan to value ratio -- LTV -- for the pool is 63.6%, compared to 65.9%, at Moody's last review in October 2003 and 64.8% at securitization. Class C has been upgraded due to increased credit support and stable overall pool performance. Classes H-WM, K-JP and M-JP have been downgraded due to poorer performance related to the 500 West Monroe, The Dublin Corporate Center and the JP Morgan Industrial Portfolio Loans. The 500 West Monroe Loan comprises 43.4% of the pool and is secured by a 44-story Class A office building located in Chicago's central business district. The property is sponsored by The Shorenstein Company and others. As of September 2004, the property was 85.7% leased, compared to 99.9% at securitization. Major tenants include GE Capital, GATX Corporation and Marsh & McLennan. Property performance has been negatively impacted by increased vacancy and a lease restructuring which reduced GE Capital's rent. GE Capital is the largest tenant in the building, occupying approximately 38.0% of the leased space. Moody's current LTV is 57.2%, compared to 53.8% at securitization. The loan is shadow rated A3, compared to A2 at securitization. The Dublin Corporate Center Loan comprises 22.9% of the pool and is secured by three Class A office buildings located in Dublin, California. The properties are sponsored by Summit Commercial Properties and Highbridge Partners. As of June 2004, property occupancy was 97.7%, compared to 91.5% at securitization. The property has significant rollover risk with approximately 50.0% of the leases expiring within the next two years. Market vacancy is approximately 18.0% and market rents have declined approximately 50.0% within the past two years. Moody's current LTV is 71.0%, compared to 65.0% at securitization. The loan is shadow rated Ba3, compared to Ba1 at securitization. The 400 Madison Avenue Loan comprises 16.9% of the pool and is secured by a 22-story Class A- office building located in midtown Manhattan. The property is sponsored by the Macklowe Organization. Built in 1929, the property underwent a $20 million renovation that was completed in 2001. As of October 2004, the property was 90.4% leased, compared to 96.6% at securitization. The building has a diverse tenant mix and caters primarily to smaller tenants. Moody's current LTV is 69.1%, the same as at securitization. The loan is shadow rated Ba1, the same as at securitization. The 950 L'Enfant Plaza Loan comprises 11.7% of the pool and is secured by a 264,325 square foot Class B office building located in Washington, DC. The property is 100% leased to the General Services Administration, the same as at securitization. Moody's current LTV is 62.7%, compared to 60.6% at securitization. The loan is shadow rated Baa3, the same as at securitization. The JP Morgan Industrial Portfolio Loan comprises 5.1% of the pool and is secured by warehouse and distribution facilities located in Bolingbrook, Illinois and Salt Lake City, Utah. The properties are sponsored by funds controlled by JP Morgan. As of June 2004, the properties were 100% leased, compared to 93.5% at securitization. Although occupancy has improved, cash flow has been negatively impacted by lower rent on new leases. Moody's current LTV is 69.6%, compared to 64.9% at securitization. The loan is shadow rated Ba1, compared to Baa3 at securitization. DII/KBR: Gets Court Nod for Trust Payment Calculation Method ------------------------------------------------------------ DII Industries, LLC and its debtor-affiliates' plan of reorganization provides that on the Effective Date, the Debtors are required to fund the Asbestos Personal Injury Trust and the Silica Personal Injury Trust by, among other things, executing and delivering an Asbestos PI Trust Funding Agreement and a Silica PI Trust Funding Agreement. The Agreements put in place mechanisms through which the Reorganized Debtors will fund amounts to the Asbestos PI Trust and Silica PI Trust to enable them to pay Qualifying Settled Asbestos PI Trust Claims and Qualifying Settled Silica PI Trust Claims at the Initial Payment Percentage established under the Plan. Pursuant to the Plan, the Initial Payment Percentage for settled claims is defined as a fraction, the numerator of which is $2.775 billion and the denominator of which is the aggregate value of qualifying claims under settlements existing as of November 14, 2003, subject to the lower-end limitation that the payment percentage can be no lower than 89.95%. This formula is the product of an agreement in principle executed in early November 2003 among the Debtors, Halliburton Co., the Asbestos Committee, and the Futures Representative after it became apparent that the total universe of potential qualifying settled claims would likely exceed the agreed settled claims cap of $2.775 billion. Because this was the case, the Debtors and Halliburton had the right under existing agreements to elect not to proceed with the Debtors' proposed prepackaged plan if payments to holders of settled claims exceeded the $2.775 billion cap. The willingness of the parties to agree to the proration formula adopted under the Agreement in Principle was essential to allowing the plan process to move forward by ensuring that settled claims would be capped at $2.775 billion. In accordance with the Plan, which was approved by the asbestos and silica claimants, the term "Qualified Claims" is specifically defined with reference to settlement agreements existing as of November 14, 2003, rather than claims as of that date. To be a Qualified Claim for purposes of calculating the Initial Payment Percentage, a claim is not required to be specifically identified but merely to be one that: (a) is covered by an Asbestos/Silica PI Trust Claimant Settlement Agreement, as amended as of November 14, 2003; and (b) has been determined by the Debtors to satisfy the medical criteria for payment under the applicable settlement agreement, regardless of when, how, and by who, the claim is paid. The reason for referencing settlement agreements rather than claimants for purposes of calculating the Initial Payment Percentage is that at the time the Plan was being drafted and voted on, a number of plaintiffs' firms were still in the process of reviewing their files and identifying which of their clients should be included in the settlement and which clients were to be listed under specific settlement agreements given local counsel representations, and the various relationships and "affiliations" among certain plaintiffs' law firms. It was envisioned that there would be inadvertent errors with respect to both the names of claimants and the claimants' disease categories, and that certain errors would need to be corrected as the claims evaluation process went forward. Likewise, several other settlements still were in the process of being negotiated and documented and thus had an unknown number of potential claimants. To protect claimants in this process from the possibility that aggregate settled claims might be in excess of expectations, the Agreement in Principle and the Plan provide for the aggregate value of Qualified Claims to be capped at $3.085 billion, which, based on the then existing list of clients, the Debtors believed was the outside potential for claims. This is reflected in the Plan in the requirement that the Initial Payment Percentage for settled claims should not be any lower than 89.95%. By its terms, however, the Plan does not limit either the number or dollar values of claims that may be included under any particular settlement agreement. This is confirmed by reference to the Agreement in Principle, which refers to "total settlement value" rather than the value of any particular settlement agreement. A list of Asbestos/Silica PI Trust Claimant Settlement Agreements reflects the inclusion of all Qualified Claims and includes certain settlement agreements that were misnamed, inadvertently omitted or intentionally excluded from previously filed exhibits because, as of November 14, 2003, the Debtors were contesting certain of the settlements. The list of these settlement agreements is available at no charge at: http://bankrupt.com/misc/Asbestos_Silica_PI_Trust_Claimant_Settlements.pdf Although the Debtors believe that the language of the Plan is clear, potential disputes have now arisen with counsel for some claimants about whether certain claims and their current claim values should be included as "Qualified Claims" for purposes of calculating the Initial Payment Percentage. The Debtors believe that these claims are properly included because they arise under and are being paid pursuant to settlement agreements that existed as of November 14, 2003. Counsel for some settled claimants have advised the Debtors, however, that there may be disagreements with the Debtors' position and that certain plaintiffs' law firms may take the position that the claims are not Qualified Claims because the claimants or their claim values were not identified on an exhibit to a settlement agreement on or before November 14, 2003. To compromise and settle certain disagreements between them and the counsel for certain claimants: (a) the Debtors acknowledge that all of the conditions precedent to the occurrence of the Effective Date have been satisfied, other than: * the Bankruptcy Court's Confirmation Order and the District Court's Affirmation Order becoming Final Orders; * the execution and delivery of the Plan Documents; and * the funding of the Asbestos PI Trust and the Silica PI Trust pursuant to the Plan's terms. (b) The Debtors will file a certification with the Court by January 5, 2005, setting forth the Initial Payment Percentage, the number and value of contested claims, and the amount of the reserve being established to satisfy contested claims in the event that they are approved; and (c) An arbitration protocol and timeline will be established by the Debtors that is consistent with the Court order on November 18, 2004, which established a deadline for holders of Settled PI Trust Claims that are not Qualified Claims. The protocol will provide that: * all arbitration will be commenced no later than April 5, 2005; * all arbitrations will be concluded by July 5, 2005, to ensure that amounts held in the reserve account established pursuant to the Plan, as amended, will be disbursed quickly; * all decisions by arbitrators will be completed by August 5, 2005; and * the Debtors will certify to the Asbestos PI Trust and the Silica PI Trust the final payments to be made to Qualifying Claimants by September 5, 2005, which will facilitate and expedite the disbursement of the remainder of the $2.775 billion plus accumulated interest by October 1, 2005, to Qualifying Claimants. The Debtors have also agreed that, provided that the Confirmation Order and Affirmation Order have become Final Orders by December 31, 2004, they will place $1 billion in cash in a mutually agreeable interest-bearing escrow account for the future benefit of the Asbestos PI Trust and the Silica PI Trust, on or before January 5, 2005, and will fund any and all remaining amounts -- less escrowed reserved amounts for disputed claims -- in accordance with the Plan's terms by January 25, 2005. In the event that the Confirmation Order and Affirmation Order are not Final Orders by December 31, 2004, the Debtors have also agreed that they will establish and fund the Asbestos PI Trust and the Silica PI Trust pursuant to the terms of the Plan within 30 days of the Confirmation Order and the Affirmation Order becoming Final Orders. Accordingly, to eliminate any uncertainty, the Debtors sought and obtained the Court's authority to include all Qualifying Settled Asbestos PI Trust Claims and Qualifying Settled Silica PI Trust Claims under any settlement agreement identified as Qualified Claims for purposes of calculating the Initial Payment Percentage, regardless of when a claim or claim value was identified or added as a claim under the applicable settlement agreement. The Court further authorizes the pre-Effective Date escrow arrangements that were entered into to resolve disputes regarding the methodology for calculating the Initial Payment Percentage. Headquartered in Houston, Texas, DII Industries, LLC, is the direct or indirect parent of BPM Minerals, LLC, Kellogg Brown & Root, Inc., Mid-Valley, Inc., KBR Technical Services, Inc., Kellogg Brown & Root Engineering Corporation, Kellogg Brown & Root International, Inc., (Delaware), and Kellogg Brown & Root International, Inc., (Panama). KBR and its subsidiaries provide a wide range of services to energy and industrial customers and government entities in over 100 countries. DII has no business operations. DII and its debtor-affiliates filed a prepackaged chapter 11 petition on December 16, 2003 (Bankr. W.D. Pa. Case No. 02-12152). Jeffrey N. Rich, Esq., Michael G. Zanic, Esq., and Eric T. Moser, Esq., at Kirkpatrick & Lockhart LLP, represent the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $6.255 billion in total assets and $5.295 billion in total liabilities. (DII & KBR Bankruptcy News, Issue No. 22; Bankruptcy Creditors' Service, Inc., 215/945-7000) DLJ COMMERCIAL: S&P Ups Ratings on $5.8M Class B-4 Certs. to BB+ ---------------------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on classes A-2, A-3, A-4, B-1, B-2, and B-4 of DLJ Commercial Mortgage Corp.'s commercial mortgage pass-through certificates series 1998-CG1. Concurrently, all other outstanding ratings are affirmed. The raised and affirmed ratings reflect credit enhancement levels that provide adequate support through various stress scenarios. As of December 2004, the trust collateral consisted of 272 commercial mortgages with an outstanding balance of $1.251 billion, down 20% since issuance. To date, there have been three realized losses totaling $8.6 million (0.55% of the initial pool balance). The master servicer, Wachovia Bank N.A., reported full-year 2003 net cash flow -- NCF -- debt service coverage ratios -- DSCRs -- for 90.4% of the pool. Interim 2003 or 2004 DSCR data was provided for another 3.7% of the pool. Based on this information, Standard & Poor's calculated the weighted average DSCR for the pool at 1.49x, which improved slightly from 1.44x at issuance. The calculation excludes 14 loans totaling $59.5 million, or 4.75%, which have been defeased. The current weighted average DSCR for the top 10 loans, which comprises 22.4% of the pool, weakened slightly to 1.51x, from 1.57x at issuance. DSCRs for six of the top 10 loans have improved since issuance. Two of the top 10 loans appear on the watchlist; however, each is cross-collateralized and cross-defaulted with another loan that is performing well. A former top 10 loan, Magnolia Lakes Apartments, with a balance of $19.0 million, had been specially serviced, but has paid off in full. There are four loans, with a combined balance of $23.6 million, or 1.89% of the pool, that are with the special servicer, Midland Loan Services, Inc. Three are secured by retail properties, and one by a multifamily property. Two of the retail loans, Highland Pavilion Shopping Center and Highland Pavilion Cinema, are cross-collateralized and current. They will be returned to the master servicer next month. The largest specially serviced asset, Lincoln Village Shopping Center, is 90-plus days delinquent. The loan has a current balance of $10.6 million and a total exposure of $11.2 million (0.85%, $63 per square foot (sq. ft.). It is secured by a 178,700-sq.-ft. retail property built in 1984 and located in Austin, Texas. The most recent occupancy and net operating income DSCR are 75% and 1.0x, respectively. Midland has received broker opinions of value and an appraisal that approximate the debt amount. Midland and the borrower are in discussions regarding a payoff. Regency Manor Apartments has a balance of $1.3 million (0.10%, $13,700 per unit) and is secured by a 97-unit multifamily property in San Antonio, Texas. The property suffers from deferred maintenance and low occupancy. The servicer's watchlist includes 57 loans totaling $243.2 million (19.4%). The loans are on the watchlist due to low occupancies, DSCRs, or upcoming lease expirations, and were stressed accordingly by Standard & Poor's. The pool has significant geographic concentrations in: * New York (13.0%), * California (11.6%), * Florida (9.6%), * Texas (7.6%), * Georgia (6.9%), * Illinois (5.4%), and * New Jersey (5.1%). Significant property type concentrations include: * multifamily (35.4%), * retail (27.3%), * office (12.9%), * lodging (12.1%), and * industrial (5.6%). Standard & Poor's stressed various loans in the mortgage pool, paying closer attention to the specially serviced and watchlisted loans. The expected losses and resultant credit enhancement levels adequately support the raised and affirmed ratings. Ratings Raised DLJ Commercial Mortgage Corp. Commercial Mortgage Pass-Thru Certs Series 1998-CG1 Rating Class To From Credit Enhancement (%) ----- -- ---- ---------------------- A-2 AAA AA+ 27.66 A-3 AAA AA- 21.50 A-4 AA+ A+ 19.65 B-1 A+ BBB+ 14.11 B-2 A- BBB 12.26 B-4 BB+ BB 5.80 Ratings Affirmed DLJ Commercial Mortgage Corp. Commercial Mortgage Pass-Thru Certs Series 1998-CG1 Class Rating Credit Enhancement (%) ----- ------ ---------------------- A-1A AAA 33.82 A-1B AAA 33.82 A-1C AAA 30.74 S AAA N/A N/A - Not applicable E*TRADE ABS: Portfolio Deterioration Cues Moody's to Pare Ratings ----------------------------------------------------------------- Moody's Investors Service downgraded these classes of securities issued by E*TRADE ABS CDO I, LTD., which were on watch for possible downgrade: * U.S. $25,000,000 Class B Third Priority Senior Secured Floating Rate Notes Due 2037 from Aa1 to Aa2; * U.S. $9,500,000 Class C-1 Mezzanine Secured Floating Rate Notes Due 2037 from Baa1 to Baa3; * U.S. $3,400,000 Class C-2 Mezzanine Secured Fixed Rate Notes Due 2037 from Baa1 to Baa3; * U.S. $12,500,000 Preference Shares from Baa3 to B3; * U.S. $5,000,000 Composite Securities from Baa3 to B1. Each of the downgraded securities remain on watch for possible downgrade. In addition, Moody's confirmed the Aaa rating of the U.S. $50,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2032 which were on watch for possible downgrade. The rating actions are due to continued portfolio deterioration and par erosion. Rating Action Details: Issuer: E*TRADE ABS CDO I, LTD. Tranche Description: U.S. $50,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2032 Prior Rating: Aaa on watch for downgrade Current Rating: Aaa Tranche Description: U.S. $25,000,000 Class B Third Priority Senior Secured Floating Rate Notes Due 2037 Prior Rating: Aa1 on watch for downgrade Current Rating: Aa2 on watch for downgrade Tranche Description: U.S. $9,500,000 Class C-1 Mezzanine Secured Floating Rate Notes Due 2037 Prior Rating: Baa1 on watch for downgrade Current Rating: Baa3 on watch for downgrade Tranche Description: U.S. $3,400,000 Class C-2 Mezzanine Secured Fixed Rate Notes Due 2037 Prior Rating: Baa1 on watch for downgrade Current Rating: Baa3 on watch for downgrade Tranche Description: U.S. $12,500,000 Preference Shares Prior Rating: Baa3 on watch for downgrade Current Rating: B3 on watch for downgrade Tranche Description: U.S. $5,000,000 Composite Securities Prior Rating: Baa3 on watch for downgrade Current Rating: B1 on watch for downgrade ENRON CORP: Wants to Modify Liquidation Incentive Pool ------------------------------------------------------ With the immediate and continuing need for stabilization of their workforce after the Petition Date, Enron Corp. and its debtor- affiliates sought and obtained Court approval for a series of three retention programs designed to provide employees with current and deferred cash payments as: -- an incentive to remain employed with the Debtors through certain dates; and -- severance protection in the event of an involuntary termination of employment without cause. Martin J. Bienenstock, Esq., at Weil, Gotshal & Manges LLP, in New York, reminds the United States Bankruptcy Court for the Southern District of New York that the three retention programs were approved on these dates: Retention Program Date Approved ----------------- ------------- Enron Key Employee Retention May 8, 2002 Severance and Liquidation Incentive Plan -- KERP I Enron Key Employee Retention and February 2003 Severance Plan II Enron Key Employee Retention and Severance Plan III January 29, 2004 The benefits under the KERP Programs ensured the Reorganized Debtors of retaining a highly skilled and motivated workforce that significantly assisted in the preservation and realization of value for the Debtors and their creditors. Prior to the approval of KERP I, attrition averaged 34 voluntary resignations per week, Mr. Bienenstock relates. Right after KERP I's approval, the Debtors' attrition rate decreased dramatically bringing it down to a weekly average of nine voluntary departures. KERP I proved to be a reasonably effective tool in slowing premature flight of the Debtors' key employees. KERP II and KERP III have also been successful in keeping unwanted attrition at a manageable rate. KERP Features KERP I included a retention bonus feature, a severance feature and a "Liquidation Incentive Pool." The components of KERP II included severance benefits and retention payments. In addition to severance benefits and retention payments, KERP III included completion bonus payments. KERP III and the LIP portion of KERP I are the currently operative programs. KERP III is a 22-month program consisting of two plan years. The first plan year for KERP III ends on December 31, 2004, while the second plan year ends on December 31, 2005. By its terms, the LIP expired on November 17, 2004, the effective date of the Chapter 11 Plan. In general, KERP III severance payments are calculated to provide a benefit equal to the greater of: (a) two weeks base pay for every full or partial year of service, with a maximum of eight weeks pay; or (b) two weeks base pay for every full or partial year of service, plus two weeks base pay for every $10,000 increment, or its part, in base salary, with the total sum not to exceed $13,500. In any case, the minimum severance benefit for eligible employees is $4,500. Any employee who participates in the LIP remains ineligible for severance benefits and retention payments under KERP III offset the amount of severance benefits otherwise available to retention award recipients. Retention payments under KERP III are calculated as an annual target benefit for each selected participant, which targets are subject to adjustment based on an employee's performance or the changing needs of the Reorganized Debtors. A selected employee may earn one-fourth of the annual target during each plan quarter. Fifty percent of earned quarterly retention is paid immediately after the close of each plan quarter. The remaining 50% is treated as non-vested and deferred, and is payable to the employee as soon as practicable at the earlier of involuntary termination of employment without cause, or after the close of the applicable plan year. The completion bonus feature of KERP III is a 100% back-end loaded payment for particularly critical employees, as determined by Enron's executive management committee and is only payable after an involuntary termination of employment without cause. A feature common to all of the KERP Programs is the requirement that, before the receipt of any payments, participants are required to execute a certification that includes a representation that the participant has not engaged in insider trading or other wrongdoing with respect to the Debtors. To receive any final deferred payment under the KERP Programs, participants are required to execute a general release of claims against the Debtors. Mr. Bienenstock explains that the LIP under KERP I was designed to recognize: -- the high level of expertise and skill required to liquidate the Reorganized Debtors' trading assets and certain non- core businesses; and -- the need to correlate incentive payments to performance in this area. The LIP functioned in a manner intended to compensate selected employees possessing the required skill and expertise necessary to assist in the liquidation process and generated payments based on cash collected from the liquidation of certain of the Reorganized Debtors' assets. An employee selected for participation in the LIP was permitted to share, at a level determined in the discretion of Management, in a pool funded by the cash collected from the liquidation the Assets. As approved by the Court, the pool funded under the LIP is calculated in this manner: Cash Maximum Maximum Accrual Collected Cum. Cash Accrual Accrual % (Increments) Collected (Increments) (Cumulative) ------- ---------- ----------- ---------- ---------- 0.5 $1 billion $500M to 1B $5M $5M 0.5 1 billion 1B to 2B 5M 10M 0.5 1 billion >2B to 3B 5M 15M 1.0 1 billion >3B to 4B 10M 25M 1.0 1 billion >4B to 5B 10M 35M 1.0 1 billion >5B to 6B 10M 45M 1.5 1 billion >6B to 7B 15M 60M 1.5 1 billion >7B to 8B 15M 75M 1.5 1 billion >8B to 9B 15M 90M LIP awards are distributed as soon as practicable after each $500,000,000 actually collected from the sales of Assets -- a Collection Milestone. Each time a Collection Milestone is achieved, Management allocates amounts accrued and undistributed under the LIP among available LIP participants in the form of a "Liquidation Bonus," determined by Management's sole discretion. Under the terms of the LIP, Collection Milestones continue until the earlier of certain events, including the effective date of the Chapter 11 Plan. In the event an LIP participant has taken substantial steps to conclude a transaction involving the sale of any Assets prior to the termination of the LIP or the participant's termination of employment other than for cause, Management is authorized to consider the proceeds from the transaction in determining whether a Collection Milestone has been achieved. As of June 30, 2004, collections under the LIP reached $6,000,000,000, or Collection Milestone 12. The LIP provides that 50% of each Liquidation Bonus is to be paid immediately after the achievement of each Collection Milestone. In general, the remaining 50% was withheld and deferred for distribution after the effective date of the Chapter 11 Plan and certain other events. A LIP participant's voluntary resignation prior to payment of any Liquidation Bonus or termination of employment for cause prior to the receipt of any deferred payment, will forfeit both the deferred portion of the Liquidation Bonus and certain other payments. Any amount forfeited was permitted to be reallocated in amounts, at certain times and among participants as determined by the Management. In connection with any reallocation, Management was required to notify the Official Committee of Unsecured Creditors and the Court appointed examiner for Enron North America, of the terms of the proposed reallocation, until the parties are discharged from their duties. Payments Under the KERP Programs For KERP III, the Court authorized: (a) the carryover of funds that remained unspent, excluding the LIP, under KERP I and KERP II; and (b) a maximum expenditure of new funds: -- $1.5 million for severance benefits; -- $29 million for retention payments; and -- $5.7 million for completion bonus payments. KERP I had fewer than 1,000 participants in each quarter, with a total of 1,004 participants over the course of the four quarters during which KERP I was in effect. Current payments under the retention component of KERP I totaled around $10.5 million, and deferred payments totaled $27.7 million, for a total expenditure of $38.2 million. About $1.8 million remained available for retention awards but was unallocated at the close of KERP I. Pursuant to the Court's February 6, 2003, order approving KERP II, the unallocated remainder was made available for payments under KERP II. KERP II had fewer than 696 participants in each quarter, totaling 717 participants over the course of the four quarters during which it was effective. About $29 million in new funding was approved for retention payments under KERP II. Cash payments for all four quarters of the retention component of KERP II reached $14.84 million, and deferred payments approximated $14.34 million with approved carryover from KERP I to cover the shortfall. KERP III was established as a longer-term program and is scheduled to remain effective throughout the remainder of 2004 and 2005. Through December 9, 2004, KERP III had 437 retention participants, for whom $6.07 million has been paid and $5.99 million has been earned for payment on a deferred basis. The amounts requested and authorized for expenditure under KERP III were based on employee census projections and scheduled employment termination dates estimated in late 2003, Mr. Bienenstock points out. Since then, the Reorganized Debtors have realized higher than expected staffing needs in certain of their working groups. Accordingly, the Debtors require the continued services of key employees for a longer period of time than anticipated and projected for KERP III budgeting purposes. Based on the increased staffing requirement, the Reorganized Debtors currently estimate that, after expenditure of the carryover of amounts approved under the retention component of KERP II, there will be a shortfall of $7,000,000 needed for the payment of future retention benefits in 2005. Mr. Bienenstock informs the Court that the Debtors propose to cover the shortfall with liquidation proceeds that have been collected under the LIP but which, due to the exercise of Management's discretion, remain unallocated. After the effective date of the Chapter 11 Plan, any amounts that the Debtors determine to be necessary beyond the $7 million would be allowed only upon the Board of Directors' approval. The Reorganized Debtors' continued efforts to maximize value for their creditors and to achieve the successful consummation of the Plan will also require the continued services of certain individuals who currently participate in the LIP. Participation in the LIP precludes participation in the other features of the KERP Programs. Accordingly, the LIP is the sole retention and incentive mechanism for employees charged with the responsibility of liquidating Assets. To provide a reasonable, targeted and continuing incentive for their employees, the Reorganized Debtors propose to implement a replacement arrangement that is heavily patterned on the LIP. Liquidation Incentive Plan II The Reorganized Debtors propose to implement a Liquidation Incentive Plan II. Structurally, LIP II is identical to the Court-approved LIP. LIP II will define collection milestones based on each $500 million in proceeds collected from the liquidation of Assets. Upon the completion of each Milestone, the collection of proceeds will generate a bonus pool equal to 1.5% of each Milestone achieved. However, under LIP II, Milestones will continue until the earliest of the date on which: (a) all Assets have been sold or liquidated; (b) the Reorganized Debtors determine not to sell the remaining Assets; or (c) $90 million in bonus pool funds have been generated under the LIP and LIP II, in the aggregate. LIP II will continue to provide a payment structure of 50% as soon as practicable after the achievement of a Milestone and 50% payable as soon as practicable after the earlier of: -- six months after the Milestone is achieved; -- the date on which no further Milestones may be achieved; or -- the death, disability or involuntary termination without cause of the participant's employment. Management will continue to retain the discretion to treat an LIP II participant as being eligible to receive an award under LIP II based on the achievement of a particular Milestone. In addition, Management will have the ability, in its sole discretion, to create intermediate Milestones (e.g., at an amount below the incremental $500 million) and designate an additional bonus pool, if Management determines that the action is warranted. Neither KERP II nor KERP III sought the modification of the LIP. By this motion, the Reorganized Debtors seek the Court's authority to: (a) address the projected shortfall in providing a reasonable retention incentive for KERP III participants; and (b) create LIP II to provide a reasonable incentive for their employees. If the Debtors' request is granted, selected employees will earn awards under LIP II in a manner designed to ensure that projected amounts available for distribution will be expended in a manner that is most beneficial to the Reorganized Debtors, their creditors and all parties-in-interest to their Chapter 11 cases. The Reorganized Debtors believe that the modification of the authorized funding under KERP III and the implementation of LIP II will: -- assist in avoiding additional unwanted attrition; -- further solidify the stability of the Debtors' workforce; and -- provide proper incentives to those individuals who are expected to yield significant value for the Debtors and their creditors as they enter into the final phases of their cases. Enron filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01-16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. (Enron Bankruptcy News, Issue No. 132; Bankruptcy Creditors' Service, Inc., 15/945-7000) EPIGENX PHARMACEUTICALS: Case Summary & 20 Unsecured Creditors -------------------------------------------------------------- Debtor: Epigenx Pharmaceuticals Inc. 5385 Hollister Avenue Goleta, California 93117 Bankruptcy Case No.: 04-13148 Type of Business: The Debtor develops epigenetic-based drugs designed to deliver therapies tailored to individual patients. Epigenesis is the series of biological processes by which an egg develops from an unorganized masses into different organs and organ systems. See http://www.epigenx.com/ Chapter 11 Petition Date: December 21, 2004 Court: Central District of California (North Division) Judge: Robin Riblet Debtor's Counsel: Steven Pinsker, Esq. Pinsker & Hurlbett 1316 Anacapa Street Santa Barbara, CA 93101 Tel: 805-963-9111 Total Assets: $6,394,715 Total Debts: $2,730,117 Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Foley & Lardner Legal Fees $409,034 3000 K St., Ste. 500 N.W. Washington, DC 20007 SuperGen, Inc. Value of Collateral: $386,673 4140 Dublin Blvd., Ste. 200 $25,000 Dublin, CA 94568 Norbert Reich Consulting Fee $143,935 1241 Mission Ridge Santa Barbara, CA 93105 Larry Bymaster Salary $98,626 Paul H. Johnson Salary $93,920 Mansour Architectural Corp. Architect Fee $69,863 Regents of the University CA License Fee $56,015 Bench Int'l Consulting Consulting Fee $45,000 Chembridge Corporation Compounds $44,797 Axon Instruments Equipment Purchase $42,325 MDL Information Systems Inc. Software License $40,716 Quince Associates, Ltd. Rent Owed $40,000 David Gluck Salary $37,500 Patterson Associates, LLC Rent Owed $29,012 Ken Richards Salary $22,358 UCLA Microarray Core Lab Services $20,050 Alec Wodtke Consulting Fee $16,667 Larry Bymaster Salary $14,422 Amersham Pharmacia Biotech Lab Services $13,049 Amersham Biosciences Corp. Lab Supplies $13,044 EQUIFIN INC: Subsidiary Timely Repays $20 Mil. Wells Fargo Loan --------------------------------------------------------------- EquiFin, Inc. (OTC BB:EQUI) reported that its principal operating subsidiary Equinox Business Credit Corp. has timely satisfied the required repayment of its $20,000,000 senior credit facility from Wells Fargo Foothill through the transfer of Equinox' portfolio assets to Foothill. As a consequence of this transaction, Foothill was fully repaid and Equinox's subordinated lender, Laurus Funds, was also fully repaid. Equinox will receive approximately $1,150,000, net of expenses, from this transaction. With the pay-off of the Foothill line of credit the Company closed the asset-based lending activities of Equinox where it had, during the past 2-1/2 years, provided revolving credit facilities of $500,000 to $3,000,000 to small midsize business enterprises. EquiFin continues to operate its finance activities through its factoring division where it purchases accounts receivable from small businesses to provide them with working capital. The Company will assess in the coming weeks whether this business activity can be sufficiently developed to support the Company's public company status. About the Company EquiFin, Inc., (AMEX:II AND II,WS) is a commercial finance company providing a range of capital solutions to small and mid-size business enterprises. Going Concern Doubt In its Form 10-KSB for fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, Equifin, Inc.'s independent public accountants raise substantial doubt about the Company's ability to continue as a going concern. FAIRFAX FINANCIAL: Completes Cash Tender Offer & New Note Issue --------------------------------------------------------------- Fairfax Financial Holdings Limited (TSX:FFH.SV) (NYSE:FFH) completed its cash tender offer for certain of the outstanding debt securities of Fairfax and its wholly-owned subsidiary, TIG Holdings, Inc., as well as the closing of its sale of $200 million of its 7-3/4% Senior Notes due 2012. A total of $114,688,000 principal amount of debt was tendered under the tender offer, consisting of: -- $11,142,000 of the 8-1/8% TIG Notes due 2005, -- $62,600,000 of the 7-3/8% Fairfax Notes due 2006, -- $36,496,000 of the 6-7/8% Fairfax Notes due 2008, and -- $4,450,000 of the 8.597% TIG Capital Securities due 2027. Banc of America Securities was the exclusive dealer manager for the tender offer and sole book-running manager for the note issuance. About the Company Fairfax Financial Holdings Limited is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance, investment management and insurance claims management. * * * As reported in the Troubled Company Reporter on Nov. 12, 2004, Fitch Ratings commented that Fairfax Financial Holdings Limited's ratings and Rating Watch Negative status are unaffected by its recent disclosures via its third-quarter 2004 financial filings and investor conference held on November 8, 2004. These ratings remain on Rating Watch Negative by Fitch: * Fairfax Financial Holdings Limited -- No action on long-term issuer rated 'B+'; -- No action on senior debt rated 'B+'. * Crum & Forster Holdings Corp. -- No action on senior debt rated 'B'. * TIG Holdings, Inc. -- No action on senior debt rated 'B'; -- No action on trust preferred rated 'CCC+'. * Members of the Fairfax Primary Insurance Group -- No action on insurer financial strength rated 'BBB-'. * Members of the Odyssey Re Group -- No action on insurer financial strength rated 'BBB+'. * Members of the Northbridge Financial Insurance Group -- No action on insurer financial strength rated 'BBB-'. * Members of the TIG Insurance Group -- No action on insurer financial strength rated 'BB+'. * Ranger Insurance Co. -- No action on insurer financial strength rated 'BBB-'. The members of the Fairfax Primary Insurance Group include: * Crum & Forster Insurance Co. * Crum & Forster Underwriters of Ohio * Crum & Forster Indemnity Co. * Industrial County Mutual Insurance Co. * The North River Insurance Co. * United States Fire Insurance Co. * Zenith Insurance Co. (Canada) The members of the Odyssey Re Group are: * Odyssey America Reinsurance Corp. * Odyssey Reinsurance Corp. Members of the Northbridge Financial Insurance Group include: * Commonwealth Insurance Co. * Commonwealth Insurance Co. of America * Federated Insurance Co. of Canada * Lombard General Insurance Co. of Canada * Lombard Insurance Co. * Markel Insurance Co. of Canada The members of the TIG Insurance Group are: * Fairmont Insurance Company * TIG American Specialty Ins. Company * TIG Indemnity Company * TIG Insurance Company * TIG Insurance Company of Colorado * TIG Insurance Company of New York * TIG Insurance Company of Texas * TIG Insurance Corporation of America * TIG Lloyds Insurance Company * TIG Specialty Insurance Company FEDERAL-MOGUL: Needs Judge Wolin's Dec. 10, 2001, Order Clarified ----------------------------------------------------------------- Federal-Mogul Corporation, together with the Legal Representative for Future Asbestos Claimants, ask the U.S. Bankruptcy Court and the U.S. District Court for the District of Delaware to: (a) clarify District Court Judge Wolin's December 10, 2001 Order; and (b) specify the roles of the United States Bankruptcy Court for the District of Delaware and the United States District Court for the District of Delaware with respect to the Estimation Proceedings and the Confirmation Proceedings. Judge Wolin's Order On December 10, 2001, Judge Wolin entered an order in Federal- Mogul's asbestos cases, allocating the responsibilities between the District Court and the Bankruptcy Court. Judge Wolin's instruction with respect to asbestos-related issues provides "that the withdrawal of the references is specifically contemplated with respect to asbestos-related claims and issues." Representing the Debtors, James E. O'Neill, Esq., at Pachulski Stang Ziehl Young Jones & Weintraub, in Wilmington, Delaware, notes that the Wolin Order does not actually withdraw the reference for asbestos- related claims and issues. This language has resulted in divergent approaches to the process of asbestos personal injury claims estimation. The Estimation Proceedings Mr. O'Neill relates that the amount of Asbestos Claims against the U.K. Debtors is at the core of the dispute among the various constituencies. The Asbestos Committee's expert, Dr. Mark Peterson, has estimated the total amount of all Asbestos Claims against the U.K. Debtors at $10.97 billion. EMB, the Administrators' expert, estimates the tort system liability of Asbestos Claims against the U.K. Debtors at $5.3 billion, and has suggested that there is some other, even lower, value that will be produced if the English Court disregards the U.S. jury system in assessing the Asbestos Claims that arise under U.S. law. Tillinghast, the expert for the T&N Retirement Benefits Scheme (1989) Trustee, estimates the liability in the range of $2.1 to $5.5 billion. The Plan Proponents fully expect that Navigant, the expert for the Property Damage Committee, will come up with yet another value. This disagreement has resulted in a stalemate among the creditor constituencies that is costing over $70 million per year in professional fees while creditors wait for distributions. The Debtors and the Future Claimants Representative believe that it is critical to carefully define and coordinate the jurisdictional and practical roles of the District Court and the Bankruptcy Court in the Estimation Proceedings. The determination of the aggregate amount of Asbestos Claims must not be limited to the narrow purpose of satisfying the statutory requirements for confirming the Plan. The Estimation Proceedings should broadly resolve the parties' dispute regarding the aggregate amount of the Asbestos Claims against the U.K. Debtors for both the Chapter 11 Cases and the English Proceedings. The courts would be estimating contingent or unliquidated personal injury claims potentially for distribution purposes. The statutory authority and case law clearly provide that the Bankruptcy Court cannot issue a final order with respect to that determination. The Confirmation Proceedings Mr. O'Neill states that the law is less clear as to the appropriate roles of the District Court and the Bankruptcy Court with respect to the Confirmation Proceedings involving Section 524(g) issues. Generally, the Bankruptcy Court is empowered to enter a final order with respect to confirmation of plans of reorganization because, by statute, the confirmation of plans is a core matter. Section 524(g)(3)(A) of the Bankruptcy Code requires that in order to receive a Section 524(g) injunction "the order confirming the plan of reorganization was issued or affirmed by the district court." The Section 524(g) injunction is an integral, non-severable component of the Plan and any related confirmation order. Accordingly, for all practical purposes, the Bankruptcy Court cannot enter an effective, final order confirming the Plan, which contains a Section 524(g) injunction. Withdraw the Reference Accordingly, the Debtors and the Future Claimants Representative invite the District Court to preside over the Estimation Proceedings and the Confirmation Proceedings, assisted by the Bankruptcy Court, and, to that end, withdraw the reference with respect to both proceedings. The effectiveness of the Plan's confirmation will be subject to the District Court's entry of a final confirmation order. Notwithstanding any participation of and withdrawal of the reference by the District Court in the Confirmation Proceedings, the administrative and procedural issues leading up to the Confirmation Proceedings should remain with the Bankruptcy Court. The Bankruptcy Court's concurrent participation in the Estimation Proceedings and Confirmation Proceedings is essential due to the Bankruptcy Court's extensive knowledge of the Debtors' cases and expertise. Mr. O'Neill asserts that the District Court's participation and withdrawal of the reference related to the Confirmation Proceedings would promote judicial efficiency and avoid any further duplication of proceedings or de nova review by the District Court. Furthermore, the entry of a final order confirming the Plan by the District Court will avoid any potential confusion in the event the order confirming the Plan is appealed, which otherwise may result in a split of appellate review between the District Court and Third Circuit Court of Appeals for core and non-core matters. Alternative Relief In the event the District Court's participation in the Proceedings is not possible, the Debtors and the Future Claimants Representative want the Bankruptcy Court to preside alone over the Proceedings. The Bankruptcy Court should enter proposed findings of fact and conclusions of law with respect to the Estimation Proceedings and those non-core aspects of the Confirmation Proceedings, including those matters concerning Section 524(g). The Bankruptcy Courts proposed findings and orders would be subject to the review of the District Court to the extent they are objected to, and the District Court would enter final orders with respect to the Proceedings. Headquartered in Southfield, Michigan, Federal-Mogul Corporation -- http://www.federal-mogul.com/-- is one of the world's largest automotive parts companies with worldwide revenue of some $6 billion. The Company filed for chapter 11 protection on October 1, 2001 (Bankr. Del. Case No. 01-10582). Lawrence J. Nyhan, Esq., James F. Conlan, Esq., and Kevin T. Lantry, Esq., at Sidley Austin Brown & Wood, and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $10.15 billion in assets and $8.86 billion in liabilities. (Federal-Mogul Bankruptcy News, Issue No. 69; Bankruptcy Creditors' Service, Inc., 215/945-7000) FINDLAY UNIVERSITY: Moody's Revises Ratings Outlook to Stable ------------------------------------------------------------- Moody's Investors Service affirmed the University of Findlay's Ba1 long-term rating. The outlook for the rating has been revised to stable from negative. The rating applies to $14 million of outstanding Series 1996 and 1999 bonds, issued through the Ohio Higher Educational Facility Commission. The University also has debt outstanding under pooled financings through the Ohio Higher Educational Facility Commission, which carry ratings based on letters of credit from a bank. Credit strengths are: (1) relatively stable enrollment (3,981 FTE students) (2) improved operating performance (avg. margin 1.1%) (3) stabilized financial resource base ($20 million in total financial resources) Credit challenges are: (1) competitive market for students in Ohio ($8,757 net tuition per student), potentially limiting net tuition revenue growth (2) very limited liquidity ($2.9 million in unrestricted financial resources) (3) ability to generate funds from operations or fundraising to grow liquidity and meet capital needs Recent Developments/Results The University of Findlay produced an operating surplus of 2.9% in FY2004, the second year of positive margins after many years of deficits. Management of the University is committed to maintaining operating balance and generating modest surpluses to finance capital and improve liquidity. Based on budgets for FY2005 and year-to-date performance, the University appears on track to generate another solid year. Total enrollment declined slightly in the fall of 2004, from 4,027 to 3,981 FTE students. All of the decline was experienced in graduate enrollment, with flat undergraduate trends. In fact, undergraduate applications continued to increase, improving selectivity to below 70%. The University is exploring the creation of pharmacy and music programs, which may contribute to future enrollment growth. Although the University's liquidity remains thin, expendable financial resources did grow over the last year, rising from $6.6 to $8.3 million. The increase was largely driven by strong investment returns of over 25%. The University's endowment remains heavily weighted toward equities (75%), leaving the University susceptible to positive and negative swings in the financial markets. Outlook The University's rating outlook was revised to stable reflecting our expectation for continued stable or growing enrollment, maintenance of improved operating results and no additional borrowing plans. What Could Change the Rating - UP Growth in liquidity, from enhanced fundraising or retained surpluses, along with stability in enrollment and leverage levels could lead to a rating upgrade. What Could Change the Rating - DOWN Enrollment declines, especially leading to operating deficits, substantial new borrowing, or reductions to already limited liquidity could pressure the rating. Key Data and Ratios Fall 2004 Enrollment FY 2004 Financial Information Total Enrollment: 3,981 full-time equivalent students Freshman Applicants Accepted: 70% Freshman Accepted Students Enrolled: 37% Expendable Resources to Debt: 0.2 times Expendable Resources to Operations: 0.1 times 3-Year Average Operating Margin: 1.1% FLORIDA HOUSING: Moody's Revises Ratings Outlook to Negative ------------------------------------------------------------ Moody's Investors Service is downgrading the underlying rating on the Florida Housing Finance Corporation Housing Revenue Bonds (Augustine Club, Plantations at Killearn & Woodlake at Killearn Apartments) Senior Series 2000 D-1 to Ba2 from Ba1 and the rating on the Subordinate Series 2000 D-2 bonds to Ba3 from Ba2. The amount of debt affected is approximately $35 million. The Senior bonds will continue to maintain MBIA bond insurance and carry MBIA's current financial strength rating of Aaa; the Subordinate bonds are not insured by MBIA. The outlook on the ratings is being revised to negative from stable. The bonds were originally issued to finance the acquisition of three properties located in Tallahassee, Florida with a total of 758 units. The downgrade of the ratings and the change in outlook are based on the review of the projects' audited financial statements for June 30, 2004. The 2004 audit shows a decline in debt service coverage from the 2003 audit largely due to a 38% increase in leasing expenditures for the properties due to management's efforts to increase occupancy at the three properties. This major increase in leasing expenses though is largely due to leasing issues with the Woodlake at Killearn Apartments property, which is the largest of the three complexes in the portfolio and accounts for 81% of the increase. The Community Builders -- TCB, the non-profit owner, reports that it is working on a plan with the on site management at the Woodlake property (which has changed its name to Cypress Pointe) to boost long term physical occupancy. The debt service coverage continues to be significantly lower than that which was projected in the transaction's original pro-forma underwriting. Debt service coverage for fiscal year ending June 30, 2004 is calculated at 1.10x for the senior bonds (a decrease from 1.20x for the 2003 fiscal year) and .92x for the subordinate bonds (a decrease from 1.01x for the 2003 fiscal year). The subordinate debt service coverage ratios reflect the inclusion of the MBIA annual insurance fee, while the senior bond coverage calculations do not include this as an expense item. During the period of time (2001 - 2002) when the properties were under financial stress, TCB ensured (through its contributions to cover certain property operating costs) that all semi-annual senior and subordinate bonds debt service payments were made. The program currently holds senior and subordinate bond debt service reserve funds that are fully funded at maximum annual debt service and remain untapped to date. Since downgrading the bonds to below investment grade in February 2002, Moody's continued to review the properties performance on a monthly basis, focusing on the physical and economic vacancy levels at the three properties and its impact on aggregate net operating income -- NOI. As of June 2004, the properties have a combined physical vacancy level of 12.5% and a combined economic vacancy level (which incorporates the physical vacancy factor) of 15.2%. The aggregate physical vacancy number has remained the same since the last review, which was based on November 2003 data and the economic vacancy level improved by decreasing from 20.7% to 15.2% as of June 2004. In July 2004, American Management Services (also known as Pinnacle) replaced Royal American as the current manager for the three properties. This is the second time that TCB has replaced management for these properties since the bonds were issued. Moody's will continue to monitor management's performance in maintaining occupancy levels and managing expense levels at the three properties. For additional information on this transaction, refer to Moody's Municipal Credit Research New Issue Report dated October 11, 2000, and the Rating Update Reports dated August 1, 2001, Feb. 26, 2002, October 7, 2002, April 16, 2003 and January 13, 2004. Outlook The rating outlook on the bonds has been revised to negative from stable due to decreased coverage levels. Moody's will continue to monitor the performance of the properties in the Tallahassee portfolio on a quarterly basis to gauge owner/manager progress in increasing current NOI levels by decreasing economic vacancy levels and managing operating expenses while maintaining physical occupancy. GMAC COMMERCIAL: Fitch Junks $6.6 Mil. 2000-C1 Mortgage Cert. ------------------------------------------------------------- GMAC Commercial Mortgage Securities Inc.'s mortgage pass-through certificates, series 2000-C1 are downgraded by Fitch Ratings: -- $6.6 million class M to 'CC' from 'CCC'; -- $6.6 million class N to 'D' from 'CC'. Fitch also affirms the following classes: -- $57.7 million class A-1 'AAA'; -- $537.2 million class A-2 'AAA'; -- Interest-only class X 'AAA'; -- $37.4 million class B 'AAA'; -- $41.8 million class C 'A+'; -- $8.8 million class D 'A'; -- $30.8 million class E 'BBB'; -- $15.4 million class F 'BBB-'; -- $22 million class G 'BB+'; -- $15.4 million class H 'BB'; -- $6.6 million class J 'BB-'; -- $8.8 million class K 'B+'; -- $11 million class L 'B-'. The $459,543 class O certificates are not rated by Fitch. The downgrade of classes M and N is the result of expected losses on several specially serviced loans, which will negatively affect credit enhancement levels. The ratings reflect the expected loss of principal on class N within the next month. As of the December 2004 distribution date, the transaction's aggregate principal balance has decreased 8.3%, to $806.5 million from $879.9 million at issuance. Six loans (6.1%) are in special servicing, including four 90 days delinquent (4.4%) and a real estate owned -- REO -- loan (1.2%). Losses are expected on several of these loans. The largest specially serviced loan (1.6%) is secured by an industrial park in Dearborn, Michigan and is 90 days delinquent. The property is currently 73% occupied and a foreclosure is pending. The second largest specially serviced loan (1.5%) is secured by a multifamily property in College Park, Georgia and is 90 days delinquent. A discounted payoff is scheduled for December 2004. The third largest specially serviced loan (1.2%) is secured by an office property in Schaumburg, Illinois. The property is REO and will be marketed for sale. Losses are expected on all of these loans. Fitch no longer considers the Equity Inns Portfolio (5.3%), a portfolio of 18 limited-service and extended-stay hotels located across 12 states, to have an investment grade credit assessment. The loan was considered investment-grade at issuance. The master servicer, GMAC Commercial Mortgage Corp., provided year-end 2003 financials for 93% of the pool. The YE 2003 weighted average debt service coverage ratio -- DSCR -- remains stable at 1.38 times. GREAT AMERICAN: Voluntary Chapter 11 Case Summary ------------------------------------------------- Debtor: Great American Cars, Inc. 7227 Fairway Road La Jolla, California 92037 Bankruptcy Case No.: 04-10867 Type of Business: The Debtor is used car dealer. Chapter 11 Petition Date: December 22, 2004 Court: Southern District of California (San Diego) Debtor's Counsel: Thomas J McKinney, Esq. 625 Broadway, Suite 1206 San Diego, CA 92101 Tel: 619-236-8308 Fax: 619-236-8309 Total Assets: $7,500,000 Total Debts: $4,824,393 The Debtor reports that it has no unsecured creditors who are not insiders. GUITAR CENTER: S&P Places Low-B Ratings on CreditWatch Positive --------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings for specialty music retailer Guitar Center, Inc., including the 'BB-' corporate credit rating, on CreditWatch with positive implications. "The CreditWatch listing is based on the company's improved operating performance over the past several quarters, supported by growth at Guitar Center retail stores and Musician's Friend direct sales, which has strengthened credit measures," said Standard & Poor's credit analyst Robert Lichtenstein. Same-store sales rose 9% in the first nine months of 2004, following a 7% gain in all of 2003, while operating margins for the 12 months ended Sept. 30, 2004, expanded to 10.5%, from 9.0% the year before. As a result, cash flow protection measures improved, with lease-adjusted EBITDA covering interest by 6x at Sept. 30, 2004, compared with 4x the year before. Leverage declined, even though additional capital was used to support the company's expansion plan, acquisitions, infrastructure improvements, and a new distribution center. Total debt to EBITDA decreased to 2.0x for the 12 months ended Sept. 30, 2004, from 3.8x the prior year. Standard & Poor's will meet with management to review Guitar Center's future operating strategies and financial policy, as well as the company's ability to maintain its current credit profile. HARBORVIEW MORTGAGE: Moody's Puts Ba2 Rating on Class B-4 Certs. ---------------------------------------------------------------- Moody's Investors Service assigned a rating of Aaa to the senior certificates issued in the HarborView Mortgage Loan Trust 2004-08 securitization of negative amortization loans secured by first liens on one- to four-family residential properties. In addition ratings of Aa2, A2, Baa2 and Ba2 were also assigned to Classes B-1, B-2, B-3 and B-4, respectively. According to Moody's analyst Amita Shrivastava, the ratings of the certificates are based on the quality of the underlying mortgage, the credit support provided through subordination, the legal structure of the transaction, as well as the capability of the servicers of the mortgage loans. The underlying collateral consists predominantly of adjustable rate negative amortization mortgage loans with an original term to maturity of 30-years. Approximately 88% of the loans are originated by Countrywide Home Loans, Inc. The remaining 12% are originated by various other originators. The loan pool is divided into three loan groups. The prefix of the certificates corresponds to the loan group they are associated with. The complete rating actions are: Seller: Greenwich Capital Financial Products, Inc. Depositor: Greenwich Capital Acceptance, Inc.. Servicers: Various * Class 1-A, $443,981,000, Aaa * Class 2-A1, $100,000,000, Aaa * Class 2-A2, $200,000,000, Aaa * Class 2-A3, $125,000,000, Aaa * Class 2-A4A, $236,026,000, Aaa * Class 2-A4B, $41,652,000, Aaa * Class 3-A1, $64,707,000, Aaa * Class 3-A2, $100,000,000, Aaa * Class X, Notional Amount, Aaa * Class A-R, $100, Aaa * Class B-1, $27,407,000, Aa2 * Class B-2, $21,082,000, A2 * Class B-3, $16,163,000, Baa2 * Class B-4, $9,837,000, Ba2 HEALTHEAST: Fitch Affirms 'BB+' Rating on Revenue Bonds ------------------------------------------------------- Fitch Ratings has affirmed approximately $189 million revenue bonds issued on behalf of HealthEast and Controlled Affiliates at 'BB+'. Fitch has also revised the Rating Outlook to Positive from Stable. The Rating Outlook revision to Positive reflects HealthEast's sustained improved financial performance exhibited over the last three years and most recent interim period with a return to operating profitability. Improved financial performance has been driven by increased managed care rates, rising volume, and improved performance at its new hospital, Woodwinds. Operating margin improved to 2.2% in fiscal 2004 from negative 1.9% in fiscal 2001, and was 2.3% through the three months ended Nov. 30, 2004. HealthEast is performing ahead of budget through the interim period and should meet its fiscal 2005 net income budget of $15 million. Other credit strengths include a leading market position in St. Paul with 38% market share in fiscal 2004 compared to the next closest competitor United Hospital (part of Allina Health System; rated 'A-' by Fitch) with 30.4% market share. Market share has remained relatively stable over the last four years for the three dominant players in the market. Credit concerns include weak liquidity, future capital needs, and high managed care penetration. HealthEast's liquidity is light with 44 days cash on hand and 39.6% cash to debt at Nov. 30, 2004, but has grown from 28.9 days cash on hand and 15.7% cash to debt at Aug. 31, 2001. Liquidity growth has been hampered by capital spending and bottom line losses in its recent history. Fitch believes balance sheet growth will be management's biggest challenge especially with major capital needs in the near future. HealthEast's five year capital plan totals approximately $160 million and includes strategic and routine capital expenditures. HealthEast's payor mix comprises 53% of revenue from managed care payors, which is split between four major companies. Recent rate negotiations have been favorable; however, the sustained improvement of the system will depend on management's ability to continue securing favorable increases going forward. An upgrade to an investment grade rating will be dependent on HealthEast's ability to sustain the current operating performance and improve its liquidity position while undertaking its five year capital plan. Headquartered in St. Paul, Minnesota, HealthEast is a large health care system providing inpatient and outpatient care, rehabilitation services, and senior care, as well as a variety of other ancillary services primarily through three acute care hospitals, one long-term care hospital, two nursing homes, two ambulatory surgery centers, and 15 primary care clinics. The three acute care hospitals operate 511 of 654 licensed beds. HealthEast only covenants to provide annual disclosure to bondholders, which Fitch views negatively. However, management has been submitting quarterly financial data to the nationally recognized municipal securities information repositories. Disclosure to Fitch has been good with the receipt of timely quarterly interim statements and annual updates after the completion of the audit. However, the quarterly statements do not include a cash flow statement. Outstanding debt: -- $48,215,000 Washington County Housing and Redevelopment Authority, hospital facility revenue bonds (HealthEast Project), series 1998; -- $27,875,000 City of St. Paul, Minnesota Housing and Redevelopment Authority, hospital facility revenue bonds (HealthEast Project), series 1997; -- $12,305,000 City of Maplewood, Minnesota, health care facility revenue bonds (HealthEast Project), series 1996; -- $16,378,000 City of South St. Paul, Minnesota Housing and Redevelopment Authority, hospital facility revenue refunding bonds (HealthEast Project), series 1994; -- $95,384,000 City of St. Paul, Minnesota Housing and Redevelopment Authority, hospital facility revenue crossover refunding bonds (HealthEast Project), series 1993. INTERLINE BRANDS: S&P Upgrades Corporate Credit Rating to BB- ------------------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on Interline Brands, Inc., and removed them from CreditWatch where they had been placed with positive implications on June 16, 2004, in connection with the company's planned initial public offering of common stock. The corporate credit rating was raised to 'BB-' from 'B+'. The outlook is stable. "The ratings upgrade reflects our expectations for lower debt leverage and greater financial flexibility following the recent completion of Interline's IPO," said Standard & Poor's credit analyst Lisa Wright. IPO proceeds of about $188 million are being used to repay $100 million of debt, pay a dividend to preferred stockholders, and for fees, expenses, and other general corporate purposes. This transaction will reduce pro forma Sept. 30, 2004, debt leverage to 3.4x. Interline Brand's ratings reflect its aggressive capital structure and moderate size, partially offset by good customer, product, and geographic diversity and a competitive cost position. Jacksonville, Florida-based Interline is a U.S. distributor of maintenance, repair, and operations products, with annual revenues of about $700 million. The company competes in this highly fragmented industry with numerous local and regional distributors, a handful of national players, some of which are significantly larger and financially stronger than Interline, and with traditional sales channels that include retail outlets and large warehouse stores. JACUZZI BRANDS: S&P Revises Outlook on Low-B Ratings to Positive ---------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on Jacuzzi Brands, Inc., to positive from stable, and affirmed its 'B+' corporate credit and 'B' senior secured debt ratings on the West Palm Beach, Florida-based company. "These rating actions reflect the likelihood that cash flow protection measures will continue to strengthen because of rising earnings and further modest debt reduction," said Standard & Poor's credit analyst Lisa Wright. Higher selling volume in the domestic spa and whirlpool bath business and manufacturing efficiencies are contributing to the increased profits. The ratings on Jacuzzi Brands reflect very competitive industry conditions (partly due to fragmented markets), the relatively narrow focus of the company's principal product lines, weak -- albeit strengthening -- operating margins in its bath business, and an aggressive debt load. These negatives are tempered by Jacuzzi's well-established positions in bath and plumbing products, stable industry outlook, reasonable liquidity, a very manageable debt maturity schedule, and expected further modest debt reduction. Jacuzzi, with fiscal 2004 sales of $1.3 billion, is a global producer of bath and plumbing products for the residential, commercial and institutional markets. Jacuzzi's bath products include whirlpool baths, shower systems, spas, acrylic tubs, sinks, and faucets. The company also makes commercial drains and valves -- Zurn -- and premium vacuum cleaners -- Rexair. Jacuzzi benefits from strong brand names, such as Jacuzzi, Zurn, Eljer, and Sundance, well-established channels of distribution, and meaningful geographic diversity of sales. About 28% of fiscal 2004 sales are derived from products sold outside the U.S. J. CREW GROUP: S&P Revises Outlook on Low-B Ratings to Positive --------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on J. Crew Group, Inc., and related entities to positive from negative. At the same time, all ratings, including the 'B-' corporate credit rating, were affirmed. J. Crew had total debt outstanding of about $328 million and mandatorily redeemable preferred stock of about $246 million at Oct. 30, 2004. "The outlook revision reflects stronger operating performance in recent quarters, our expectation that J. Crew will continue to benefit from its merchandising repositioning initiatives and more disciplined inventory management, and improved financial flexibility from the recently announced debt refinancing," said Standard & Poor's credit analyst Ana Lai. "The ratings continue to reflect the company's participation in the intensely competitive apparel retailing industry and its highly leveraged balance sheet." J. Crew went through a period of poor operating performance with steep declines in sales and profitability due to merchandising missteps and increases in promotional selling. New management's initiatives to improve the quality of the products and to focus on more disciplined inventory management have contributed to solid improvements in operating performance in recent quarters. Comparable-store sales increased 30% in the quarter ended Oct. 30, 2004, and 16% year to date. Operating margins improved due to reduced levels of markdowns and positive sales leverage. As a result, EBITDA increased to $46 million for the nine months ended Oct. 30, 2004, from $8 million in the prior-year period. Despite recent improvement in profitability and a gradual improvement in credit protection measures, J. Crew's financial profile remains weak, characterized by very high debt leverage and thin cash flow protection measures. As of Oct. 30, 2004, total debt to EBITDA measured more than 9x (including preferred stock that is mandatorily redeemable in 2009) and EBITDA coverage of interest and dividends was less than 1x. Excluding the preferred stock, total debt to EBITDA measured about 7x. The recently announced debt refinancing is expected to result in meaningful interest savings and improved financial flexibility due to extended debt maturities. Pro forma for the refinancing, EBITDA cash interest coverage reaches about 1.6x. KITCHEN ETC: Judge Walsh Approves Amended Disclosure Statement -------------------------------------------------------------- The Honorable Peter J. Walsh of the U.S. Bankruptcy Court for the District of Delaware approved the adequacy of the Second Amended Disclosure Statement explaining the Second Amended Liquidating Plan of Reorganization filed by Kitchen Etc., Inc. on December 14, 2004. The Court also approved the form of the Ballots for voting on the Plan and the proposed Solicitation and Voting Tabulation Procedures. The Debtor filed its second Amended Disclosure Statement on November 11, 2004, and its Second Amended Liquidating Plan of Reorganization on November 15, 2004. The Plan provides for the appointment of a Plan Administrator who will act as the sole representative of the Debtor upon the Effective Date of the Plan and who will have the authority and power to make the required distributions under the Plan. The Plan groups claims and interest into seven classes and provides these recoveries: a) Class 1 unimpaired claims consisting of Other Priority Claims will be paid in full on the Effective Date. b) Class 2 unimpaired claims consisting of Secured Tax Claims will be paid in full over six years with 6% interest. c) Class 3 unimpaired claims consisting of Other Secured Claims will be paid in full with interest as required under Section 506(b) of the Bankruptcy Code. The Debtor estimates Other Secured Claims total $108,000. d) Class 4 impaired claims consisting of General Unsecured Claims total $20.5 million. General Unsecured Creditors are projected to recover 6% to 10% of what they're owed from a pool of Available Cash. e) Class 5 impaired claims consisting of Allowed Convenience Claims (totaling $257,293) receive a 20% cash payment. f) Class 6 and Class 7 impaired claims consisting of Preferred Stock Equity Interests and Common Stock Equity Interests receive no distributions under the Plan except to the extent that Available Cash will exceed the amount necessary to satisfy creditors' claims in full. The Plan also provides for the payment of two unclassified groups claims consisting of: a) unimpaired Administrative Expense Claims estimated to total $900,000 will be paid in full on the Effective Date; and b) unimpaired Priority Tax Claims totaling $50,000 will be paid in full as required in Section 1129(a)(9)(c) of the Bankruptcy Code. A full text copy of the Amended Disclosure Statement and Amended Plan is available for a fee at: http://www.researcharchives.com/download?id=040812020022 The Court set January 21, 2005, as the deadline by which all ballots for acceptance or rejection of the Plan must be completed and delivered to the Debtor's counsel: Adelman Lavine Gold and Levin Citizens Bank Center 919 North Market Street, Suite 70 Wilmington, Delaware 19801 The Court also set January 21, 2005 as the deadline by which all objections to the Plan must be filed and served. The Court will convene a confirmation hearing to consider the merits of the Plan at 3:30 p.m., on January 31, 2005. Headquartered in Exeter, New Hampshire, Kitchen Etc., Inc. -- http://www.kitchenetc.com/-- was a multi-channel retailer of household cooking and dining products. Kitchen Etc. filed for chapter 11 protection on June 8, 2004 (Bankr. Del. Case No. 04- 11701) and quickly retained DJM Asset Management to dispose of all 17 Kitchen Etc. stores throughout New England, New York, Delaware, Pennsylvania, Maryland and Virginia. Bradford J. Sandler, Esq., at Adelman Lavine Gold and Levin, PC, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $32,276,000 in total assets and $33,268,000 in total debts. KMART CORP: FTC Review of Sears Merger to Expire in January ----------------------------------------------------------- Following informal discussions with the staff at the Federal Trade Commission, during which the FTC requested additional time, in light of the holiday season, to complete its review of the merger, Kmart and Sears voluntarily agreed to withdraw their previously filed Hart-Scott-Rodino Notification and Report Forms and will refile them by December 28, 2004, when the 30-day waiting period will recommence. Kmart and Sears now expect the FTC review period to expire in January 2005. Kmart and Sears have been working cooperatively with the FTC as it conducts its review of the merger, including voluntarily providing additional information to the FTC staff in response to their informal request. In that regard, the FTC staff recently requested certain information, which the parties provided, and the staff has requested more time to review it in light of the holiday season. The parties remain confident that the HSR review will be concluded without causing any delay in the transaction. The parties remain committed to continuing to cooperate with the FTC and expect the transaction to close by early March 2005. About Sears, Roebuck and Co. Sears, Roebuck and Co., is a broadline retailer providing merchandise and related services. With revenues in 2003 of $41.1 billion, the company offers its wide range of home merchandise, apparel and automotive products and services through more than 2,300 Sears-branded and affiliated stores in the U.S. and Canada, which includes approximately 870 full-line and 1,100 specialty stores in the U.S. Sears also offers a variety of merchandise and services through http://sears.com/, http://landsend.com/,and specialty catalogs. Sears is the only retailer where consumers can find each of the Kenmore, Craftsman, DieHard and Lands' End brands together -- among the most trusted and preferred brands in the U.S. The company is the largest provider of product repair services with more than 14 million service calls made annually. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- is the nation's second largest discount retailer and the third largest merchandise retailer. Kmart Corporation currently operates approximately 2,114 stores, primarily under the Big Kmart or Kmart Supercenter format, in all 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. LAIDLAW INTL: Moody's Reviewing Low-B Ratings & May Upgrade ----------------------------------------------------------- Moody's Investors Service has placed the long-term debt ratings of Laidlaw International, Inc., under review for possible upgrade. The review is prompted by the recent announcement by the company that it had entered into a definitive agreement to sell both of its healthcare businesses to Onex Partners LP, an affiliate of Onex Corporation, for $820 million. Net proceeds after fees and assumption of a small amount of debt by the buyer is estimated at $775 million, with a majority of the proceeds intended to be used to repay substantial levels of Laidlaw's existing debt. Moody's has also assigned a Speculative Grade Liquidity Rating of SGL-2 to Laidlaw International, Inc. As part of the rating action, Moody's has reassigned to Laidlaw International, Inc., certain ratings, including the senior implied and senior unsecured issuer ratings, originally assigned at Laidlaw, Inc., in order to reflect more appropriately the company's current organizational structure. Moody's views the sale of Laidlaw's AMR and EmCare business units as generally favorable to the company's credit profile. The company stated in its December 6, 2004, announcement that it intends to use a substantial portion of the proceeds to retire about $579 million of its Term B senior secured facility. This would represent debt reduction of approximately one-half of the company's total debt outstanding, against the disposal of business units that provided less than 20% of the company's FY 2004 EBITDA, combined. Moody's believes it is likely that the reduction in debt along with a corresponding savings in interest expense related to the Term B loan will outweigh the foregone earnings and cash flows associated with the sold entities in relation to credit fundamentals. Moreover, Moody's believes that the sale of the healthcare divisions allows Laidlaw to focus on its core transportation businesses, particularly Educational Services and Greyhound, while removing a degree of risk and operating difficulty that has been associated with the healthcare divisions, but not inherent in Laidlaw's core businesses. The review will focus on the timing and terms of the actual sale transaction, the extent to which proceeds will actually be applied to debt repayment, and the ability of the company to adequately amend its existing senior secured credit facilities to reflect a company with a smaller earnings, cash flow, and asset base. Moody's will also assess the expected financial performance of the company's continued operations, which will now be dominated by results from the Laidlaw's core Educational Services and Greyhound business units. The ratings under review for upgrade include: * $200 million senior secured revolving credit facility due 2008 of Ba3, * $594 million senior secured term loan B due 2009 of Ba3, * $400 million senior notes due 2011 of B2 * Senior implied rating of B1, and * Issuer rating of B2. In another rating action, Moody's has assigned a Speculative Grade Liquidity rating of SGL-2 to the company, reflecting the company's good liquidity position with respect to cash and available credit facilities, and adequate cash flow generation in the near term that should allow the company to cover fixed cost requirement over the next 12 months with only minimal, if any, reliance on its revolving credit facility to meet short-term working capital needs during this period. As of August 2004, Laidlaw had a cash balance of $158 million, which has grown from about $100 million as of the prior year. The company also reported availability of about $91 million under its $200 million revolving credit facility, resulting in total liquidity of about $249 million. Moody's believes that this provides adequate access to cash in the event of substantial, unexpectedly large working capital or capital expenditure requirements over the near term. Laidlaw has been generating substantial free cash flow recently on modestly improving operating results. Revenue for FY 2004 (ending August), at about $4.6 billion, had grown by about 3% from FY 2003 levels, while EBITDA improved about 10% to about $505 million. The company generated free cash flow of about $178 million in FY 2004, representing about 15% of total debt. Although the company has significant capital expenditure requirements associated with on-going fleet renewal (over $200 million of CAPEX in FY 2004, and almost $300 million spent in 2003), Moody's expects Laidlaw to continue to be free cash flow positive through the near term, reducing the company's reliance on its revolving credit facility for operating or working capital purposes, outside of limited short-term drawings necessitated by the seasonality of the school bus and travel sectors. Moodys' notes that Laidlaw currently operates with adequate room under covenant levels specified in the terms of its current senior secured credit facilities to withstand moderate unexpected setbacks in operating results over the near term. The covenant levels that appear to be most restrictive involve leverage ratios, both total and senior secured leverage, whereby Moody's estimates Laidlaw to have about a 15-20% cushion between actual operating results and maximum allowable levels. The rating agency notes that the proposed AMR and EmCare sales demonstrate the ability of the company to raise funds and de-lever the company through strategic sale of individual business units. However, Moody's notes that, once completed, this reduces the company's remaining strategic sale options, leaving the company with only its Greyhound business unit and, on a much smaller level, Public Transit unit as candidates for sale in the event the company is required to raise cash. Although Greyhound's size and operating results suggest substantial potential proceeds from disposal, Moody's does not believe that such a sale would likely be executed in the near future. Laidlaw, Inc., headquartered in Naperville, Illinois, is the leading private provider of school bus services in the US and Canada and para-transit services in the US. The company maintains a fleet of 40,000 vehicles for use in this service, with contracts in 38 states and six provinces of Canada. The company also provides services for the health care industry by way of ambulance transport and mobile healthcare through its American Medical Response subsidiary, and hospital emergency department staffing and management services through its EmCare subsidiary. In addition, the company is the 100% owner of Greyhound, Inc., North America's leading provider of inter-city passenger bus services. However, Greyhound US, which represents the majority of this operation, is self-financed, and provides no guarantee or collateral support to the debt rated by Moody's. LAIDLAW INT'L: To Hold Annual Shareholders' Meeting on Feb. 8 ------------------------------------------------------------- Laidlaw International, Inc. (NYSE:LI) announced that it will hold its 2005 Annual Meeting of Shareholders on Tuesday, February 8, 2005. The meeting, which is scheduled for 2:00 pm central standard time, will be held at the Oak Brook Hills Resort, 3500 Midwest Road, Oak Brook, Illinois. Shareholders who hold shares of Laidlaw International as of December 16, 2004, will receive notice of the meeting and will be eligible to vote. Headquartered in Arlington, Texas, Laidlaw, Inc., now known as Laidlaw International, Inc., -- http://www.laidlaw.com/-- is North America's #1 bus operator. Laidlaw's school buses transport more than 2 million students daily, and its Transit and Tour Services division provides daily city transportation through more than 200 contracts in the US and Canada. Laidlaw filed for chapter 11 protection on June 28, 2001 (Bankr. W.D.N.Y. Case No. 01-14099). Garry M. Graber, Esq., at Hodgson Russ LLP, represents the Debtors. Laidlaw International emerged from bankruptcy on June 23, 2003. (Laidlaw Bankruptcy News, Issue No. 54; Bankruptcy Creditors' Service, Inc., 215/945-7000) LORAL SPACE: Plan Solicitation Period Extended to Jan. 11 --------------------------------------------------------- Loral Space & Communications, Ltd., and its debtor-affiliates obtained a bridge order from the U.S. Bankruptcy Court for the Southern District of New York extending the time to solicit acceptances of their proposed plan of reorganization through Jan. 11, 2005. About the Plan The Plan provides, among other things, that: * Loral's two businesses, Space Systems/Loral and Loral Skynet, will emerge intact as separate subsidiaries of reorganized Loral (New Loral). * Space Systems/Loral, the satellite design and manufacturing business, will emerge debt-free. * The common stock of New Loral will be owned by Loral bondholders, Loral Orion bondholders and certain other unsecured creditors, as follows: * Loral bondholders and certain other unsecured creditors will receive approximately 19.4% of the common stock of New Loral. * Loral Orion unsecured creditors, including Loral Orion bondholders, will receive approximately 79% of New Loral's common stock plus $200 million in new senior secured notes to be issued by reorganized Loral Skynet. These creditors also will be offered the right to subscribe to purchase their pro-rata share of an additional $30 million in new senior secured notes to be issued by reorganized Loral Skynet. This rights offering will be backstopped by certain creditors who will receive a fee payable in the notes. * All other general unsecured creditors will have an option to elect to receive their pro rata share of approximately 1.6% of New Loral common stock or their pro rata share of $30 million in cash, subject to adjustment for over-subscription or under-subscription. * Existing common and preferred stock will be cancelled and no distribution will be made to current shareholders. * New Loral will emerge as a public company and will seek listing on a major stock exchange. The Disclosure Statement explaining the Plan estimates New Loral's enterprise value at $650 million to $800 million. About the Company Loral Space & Communications is a satellite communications company. It owns and operates a fleet of telecommunications satellites used to broadcast video entertainment programming, distribute broadband data, and provide access to Internet services and other value-added communications services. Loral also is a world-class leader in the design and manufacture of satellites and satellite systems for commercial and government applications including direct- to-home television, broadband communications, wireless telephony, weather monitoring and air traffic management. The Company and various affiliates filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 03-41710) on July 15, 2003. Stephen Karotkin, Esq., and Lori R. Fife, Esq., at Weil, Gotshal & Manges LLP, represent the Debtors in their restructuring efforts. When the company filed for bankruptcy, it listed total assets of $2,654,000,000 and total debts of $3,061,000,000. MANUEL'S I-10 AUTO: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------------- Debtor: Manuel's I-10 Auto & Truck Stop, Inc. PO Box 470 Crowley, Louisiana 70527 Bankruptcy Case No.: 04-53058 Type of Business: The Company operates a truck stop. Chapter 11 Petition Date: December 17, 2004 Court: Western District of Louisiana (Opelousas) Judge: Chief Judge Gerald H. Schiff Debtor's Counsel: H. Kent Aguillard, Esq. Young, Hoychick & Aguillard 141 South 6th Street PO Box 391 Eunice, Louisiana 70535 Tel: (337) 457-9331 Estimated Assets: $500,000 to $1 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ GL Manuel Oil Company Open account $1,023,124 PO Box 470 Crowley, Louisiana 70527 Video Poker Distributor Open account $35,698 5937 Jones Creek Road, Suite B Baton Rouge, Louisiana 70817 H & H Metal Contractor Open account $28,910 2506 Wilder Road Crowley, Louisiana 70526 LWCC $23,631 PO Box 260237 Baton Rouge, Louisiana 70826 Southern Security Open account $17,100 Lamar Open account $15,762 Conoco Food Services Open account $13,222 Power Service Products Open account $9,623 Broussard Poche Lewis & Breaux Open account $9,493 Stuckey's Distribution Open account $7,558 Lottery $7,300 Advance Stratagies Open account $5,000 Slemco Open account $4,641 The Lamar Companies Open account $4,000 Barjan Products Open account $3,669 Conco Food Distributors Open account $3,429 Petrey Wholesale Open account $2,311 A-1 Service, Inc. Open account $2,198 Partner Points Open account $1,513 Continental Fuel System Open account $1,500 MENLO WORLDWIDE: S&P Upgrades Ratings from BB+ to AAA ----------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on Menlo Worldwide Forwarding, Inc., to 'AAA' from 'BB+' and removed the ratings from CreditWatch where they were placed Oct. 6, 2004. The outlook is now stable. The rating action follows the acquisition by United Parcel Service, Inc., (UPS) (AAA/Stable/A-1+) of Menlo Worldwide Forwarding from CNF Inc. (BBB-/Stable/--). The ratings on UPS were affirmed. "The addition of Menlo Worldwide Forwarding, a provider of domestic and international freight forwarding, should bolster UPS' supply chain solutions business by allowing UPS to offer guaranteed heavy air freight services to its customers," said Standard & Poor's credit analyst Lisa Jenkins. "UPS' focus on improving yields, cutting costs, and making more efficient use of capital should help the company maintain its very strong competitive position and financial profile." Menlo Worldwide Forwarding, which generated $1.9 billion in gross revenues in 2003, has a successful international business and a domestic heavy airfreight business that has been restructured to reduce losses. UPS expects the deal to be slightly accretive to earnings in 2005. UPS, based in Atlanta, Georgia, is the leading provider of ground package delivery in the U.S. It is also a significant competitor in domestic air express package delivery, international package delivery, and logistics services. In addition, UPS provides selected financial services to its customers through UPS Capital. Domestic package operations accounted for about 75% of revenues and operating profit in 2003. While UPS' market position varies by segment, it generally ranges from dominant to solid. For the first nine months of 2004, UPS reported an 8.9% increase in revenues and a 20.8% increase in net income versus the comparable period of 2003. The company has provided guidance indicating that earnings will likely increase by a similar percentage for the fourth quarter of 2004 versus the fourth quarter of 2003. The company expects earnings-per-share growth in the 13%-17% range in 2005. MERISEL INC: Nasdaq Denies Company's Appeal & Delists Common Stock ------------------------------------------------------------------ Merisel, Inc., (Stock Symbol: MSEL) received a notice from the staff of the Nasdaq Stock Market that the Nasdaq Listing Qualifications Panel has denied the Company's appeal of the Staff's October 1, 2004, decision to delist the common stock of the Company. Accordingly, the Company's common stock was delisted effective with the open of business on December 22, 2004. Historically, Merisel was a Fortune 500 distributor of computer hardware and software throughout the world. Following a period of rapid growth, the Company from 1996 through 2000, elected to sell or wind down all of its businesses except a software licensing business. In August 2004, Merisel divested its software license distribution business to focus on its acquisition strategy. Today, Merisel is an acquisition company actively seeking and pursuing leveraged transactions that will enhance shareholder value. The Company's acquisition capability combines the benefits of having a seasoned M&A team traditionally found with financial partners with the operational expertise and long-term perspective of a strategic partner. Additionally, as a public company, Merisel provides access to public markets and liquidity for its shareholders. MERISEL INC: Deloitte & Touche Resigns as Auditors -------------------------------------------------- On December 15, 2004, Deloitte & Touche LLP orally informed the chair of the Company's Audit Committee that it was resigning effective immediately. On December 16, 2004, Deloitte sent the Company a letter dated the 15th confirming Deloitte's resignation effective on December 15, 2004. Deloitte informed the Company of these reasons for its resignation: (1) since the Company's sale of various assets and liabilities to D&H Services LLC in August 2004, the Company has had no on-going operations or revenues, other than interest income -- although it continues to pursue opportunities to acquire a new operating business. (2) Deloitte has expressed concern regarding the Company's investigation of the alleged fraud by the Company's former President and CEO, Timothy Jenson, in connection with the D&H Services transaction. In particular, Deloitte had asked that the Company investigate whether Mr. Jenson had access to the Company's financial reporting system and ask that the Company investigate other transactions in which Mr. Jenson may have been involved. The Company had informed Deloitte that it would investigate these issues, but that due to a preplanned move of the Company's offices, the Company's computer system would be unavailable for the investigation until December 17, 2004. The move was completed on December 17, 2004, and the Company's computer systems were once again operational as of Dec. 21, 2004. The Company intends to complete the investigation requested by Deloitte. (3) Deloitte advised the Company on December 15, 2004, that it was unwilling to rely upon the representations of the Company's current CEO. This decision was based on a judgment issued on January 27, 2003 in SEC v. Dunlap, et al, U.S.D.C. S.D. Fla., Case No. 01-8437-Civ., which set forth the terms of a civil settlement between the Company's current CEO and the SEC relating to the current CEO's employment in the mid-1990s at Sunbeam Corporation. Prior to hiring the current CEO, however, the Board of Directors of the Company carefully reviewed the Settlement Order and related materials and determined that the current CEO did not admit liability in the Settlement Order and that the terms of the Settlement Order did not present a legal obstacle to hiring the current CEO. The Board of Directors further determined that the Company's current CEO was otherwise fit for office. The Company's Audit Committee and Board of Directors have discussed these matters with Deloitte. The Company has not yet retained a successor accountant, but will actively search for a new auditor. The Company has authorized Deloitte to respond fully to any inquiries of the successor accountant, once retained, regarding these matters. Since the consummation of the sale to D&H Services, LLC, the Company has had no on-going operations or revenues, other than interest income. As of September 30, 2004, the Company's principal assets consisted of cash and cash equivalents in the approximate amount of $48 million. Historically, Merisel was a Fortune 500 distributor of computer hardware and software throughout the world. Following a period of rapid growth, the Company from 1996 through 2000, elected to sell or wind down all of its businesses except a software licensing business. In August 2004, Merisel divested its software license distribution business to focus on its acquisition strategy. Today, Merisel is an acquisition company actively seeking and pursuing leveraged transactions that will enhance shareholder value. The Company's acquisition capability combines the benefits of having a seasoned M&A team traditionally found with financial partners with the operational expertise and long-term perspective of a strategic partner. Additionally, as a public company, Merisel provides access to public markets and liquidity for its shareholders. MET-COIL SYSTEMS: Wants Court to Formally Close Ch. 11 Proceeding ----------------------------------------------------------------- Met-Coil Systems, LLC, fka Met-Coil Systems Corporation asks the U.S. Bankruptcy Court for the District of Delaware to formally close its chapter 11 case pursuant to Section 350(a) of the Bankruptcy Code. The Debtor reports to the Court that its estate has been fully administered and its trustee discharged. Courts typically consider six factors before issuing a final decree in a bankruptcy case: a) whether the order confirming the plan has become final; b) whether deposits required by the plan have been distributed; c) whether the property proposed by the plan to be transferred has been transferred; d) whether the debtor or the successor of the debtor under the plan has assumed the business or management of the property under the plan; e) whether payments under the plan have commenced; and f) whether all motions, contested matters and adversary proceedings have been finally resolved. According to Met-Coil, it has satisfied these six factors and urges the Court to close its bankruptcy case. Headquartered in Westfield, Massachusetts, Met-Coil Systems Corporation manufactures coil sheet metal processing equipment and integrated systems for producing blanks from sheet metal coils. The Company filed for chapter 11 protection on August 26, 2003 (Bankr. Del. Case No. 03-12676). James C. Carignan, Esq., and Jason W. Harbour, Esq., at Morris Nichols Arsht & Tunnell represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed more than $10 million in assets and more than $50 million in debts. Met-Coil's Plan was declared effective on October 19, 2004. MILLENNIUM CHEMICALS: Fitch Issues Low-B Ratings on Debt -------------------------------------------------------- Fitch Ratings has initiated rating coverage on Millennium Chemicals Inc.'s through this rating: -- Convertible senior unsecured debentures 'B+'. Fitch has also assigned initial ratings to Millennium America Inc.: -- Senior unsecured notes 'B+'; -- Senior secured credit facility 'BB-'. Millennium America Inc. is an indirect wholly-owned subsidiary of Millennium. The Rating Outlook is Stable. The ratings are supported by Millennium's business portfolio, market positions in North America and Europe, 29.5% equity interest in Equistar Chemicals LP), and earnings leverage during the peak of the chemical cycle. The ratings also consider the volatility in operating earnings through the chemical cycle, cyclical nature of its commodity products and Lyondell Chemical Company's ownership of the company. Concerns include the potential for softening in demand with rapidly increasing raw material and product prices, and temporary margin pressure as the company realizes price increases for its products. Currently Millennium can not declare dividends to Lyondell due to certain restrictions in its existing bond indentures. Fitch expects Millennium will be able to declare dividends to Lyondell in 2006 as a result of improvement in net earnings and increased distributions from Equistar over the next 18-to-24 months. The Stable Rating Outlook reflects the modest improvement in Millennium's acetyls and specialty chemicals businesses and strengthening of supply demand fundamentals for titanium dioxide. Fitch expects average selling prices to trend higher if demand remains steady and operating rates continue to increase. Slight margin expansion has occurred in 2004 and in general, is expected to continue as market fundamentals strengthen. Fitch remains moderately concerned about the sustainability of the recovery with increasing energy costs and the overall effect of high petrochemical prices on demand. As of Sept. 30, 2004, Millennium's balance sheet debt totaled $1.4 billion. The company had a total debt-to-EBITDA of 7.1 times and total adjusted debt-to-EBITDAR, incorporating gross rent, of 7.2x for the latest 12-months ending Sept. 30, 2004. EBITDAR to interest incurred plus rental expense was 1.7x for the same period. Balance sheet debt consists of $1.225 billion in senior unsecured notes and debentures, $150 million in convertible senior unsecured debentures, $26 million in other long-term debt and $6 million in current maturities. Millennium had sufficient liquidity at the end of the third quarter with $313 million in cash and $124 million available under its undrawn senior secured credit facility. The next significant maturity of long-term debt is in 2006 when the $500 million, 7% senior unsecured notes mature. Millennium Chemicals, Inc., a wholly-owned subsidiary of Lyondell Chemical Company, is a multinational producer of commodity chemicals including TiO2 and related products, acetic acid, vinyl acetate monomer -- VAM -- and certain specialty chemicals. Millennium also owns approximately 29.5% of Equistar, which produces ethylene, polyethylene and certain co-products such as propylene and benzene. For the latest 12-months ending Sept. 30, 2004, the company had $1.86 billion in net sales and $198 million in EBITDA, as well as $30 million in JV dividends from Equistar. Millennium is the second largest global producer of TiO2 and the largest producer of titanium tetrachloride in North America and Europe. In addition, the company is the second largest producer of VAM and acetic acid in North America. In 2003: * United States accounted for 51% of sales, * UK accounted for 23%, * Asia/Pacific accounted for 11%, * Europe (excluding UK) and * rest of the world accounted for 15% before inter-area eliminations. TiO2 and related products are used in paint and coatings, plastics, paper, elastomers and certain other applications. Vinyl acetate monomer in used to produce a variety of polymers used in adhesives, water-based paint, textile coatings and paper coatings. The ratings were initiated by Fitch as a service to users of its ratings and are based on public information. MKP CBO: Moody's Junks Class C-1 & Class C-2 3rd Priority Notes --------------------------------------------------------------- Moody's Investors Service had taken rating action on two classes of notes issued by MKP CBO II, Ltd. Moody's confirmed the A3 rating of the Issuer's U.S. $18,000,000 Class B Second Priority Floating Rate Term Notes, Due 2036. Moody's also lowered to Caa2 (from B1 on Watch for possible downgrade) the rating of the U.S. $12,500,000 Class C-1 Third Priority Floating Rate Term Notes, Due 2036 and U.S. $12,500,000 Class C-2 Third Priority Fixed Rate Term Notes, Due 2036. Moody's noted that this transaction closed on December 20, 2001. According to Moody's, its rating action results primarily from continuing deterioration in the weighted average rating factor and overcollateralization ratios of the collateral pool. Moody's noted that, despite the partial paydown of the senior notes on the most recent payment date, the Class C overcollateralization ratio remains out of compliance. Issuer: MKP CBO II, Ltd. Rating Action: Rating Confirmation Class Description: U.S. $18,000,000 Class B Second Priority Floating Rate Term Notes, Due 2036 Prior Rating: A3 (on Watch for downgrade) Current Rating: A3 Rating Action: Downgrade Class Description: U.S. $12,500,000 Class C-1 Third Priority Floating Rate Term Notes, Due 2036 U.S. $12,500,000 Class C-2 Third Priority Fixed Rate Term Notes, Due 2036 Prior Rating: B1 (on Watch for downgrade) Current Rating: Caa2 MORGAN STANLEY: Fitch Issues Low-B Ratings on Six Mortgage Certs. ----------------------------------------------------------------- Fitch Ratings affirms Morgan Stanley Dean Witter Capital I Trust commercial mortgage pass-through certificates, series 2001-TOP1: -- $22 million class A-1 at 'AAA'; -- $160.5 million class A-2 at 'AAA'; -- $138.5 million class A-3 at 'AAA'; -- $576 million class A-4 at 'AAA'; -- Interest Only (IO) class X-1 at 'AAA'; -- IO class X-2 at 'AAA'; -- $34.7 million class B at 'AA'; -- $31.8 million class C at 'A'; -- $11.6 million class D at 'A-'; -- $27.5 million class E at 'BBB'; -- $10.1 million class F at 'BBB-' -- $18.8 million class G at 'BB+'; -- $8.7 million class H at 'BB'; -- $5.8 million class J at 'BB-'; -- $5.8 million class K at 'B+'; -- $6.6 million class L at 'B', -- $3.1 million class M at 'B-'. Fitch does not rate the $8.2 million class N. The affirmations are due to the consistent performance of the pool. As of the December 2004 distribution date, the transaction's aggregate principal balance decreased 8.1% since issuance. As of year-end 2003 the weighted average debt service coverage ratio -- DSCR -- for the transaction was 1.79 times compared to 1.60x at issuance. Currently, four loans (2.7% of the pool) are in special servicing. The largest specially serviced loan, Highland Station Apartments (1.1%) is secured by a multifamily property in Marietta, Georgia. Revenue decreased 26% due to the softening of the market. As of October 2004 occupancy was 78%. The special servicer GMAC Commercial Mortgage Corp. completed the foreclosure action on July 6, 2004 and the property has been listed for sale. Expected losses are anticipated to be less than the $4.9 million appraisal reduction. Overall, losses are anticipated on three of the four specially serviced loans. Class N is sufficient to absorb potential losses. Fitch reviewed as part of its analysis, the six credit assessed loans (19.2% of the pool). The DSCR for each loan is calculated using servicer provided net operating income less required reserves divided by debt service payments based on the current balance using a Fitch stressed refinance constant. Four of the six loans have maintained investment grade credit assessments. Santa Monica Place (7.5%) is secured by 277,171 square feet -- sf -- of in-line space in a 560,000 sf regional mall located in Santa Monica, California. The mall is anchored by Macy's and Robinson- May. The loan is further secured by the ground leased fee interest in the Robinson-May space. As of YE 2003 the Fitch adjusted net cash flow -- NCF -- decreased approximately 18% since issuance. The decrease is due to the decline in occupancy as of August 2004 to 68% compared to 74% as of December 2003 and 95.2% at issuance. The DSCR as of YE 2003 was 1.15x, compared to 1.33x at issuance. The enclosed mall suffers from reduced foot traffic, which is in contrast to the 3rd Street Promenade, an outdoor shopping area to which the mall is adjacent. Due to the continued declines in property performance, the credit assessment for this loan is considered below investment grade. Richfield Apartment Portfolio (3.2%) is secured by five cross- collateralized, cross-defaulted mortgage loans encumbering five multifamily complexes with 2,732 units located in Dallas, Texas. As of YE 2003, the adjusted NCF declined 18.1% since issuance and 14.2% since YE 2002. The declines are due to the drop in the portfolio occupancy and a 22.1% increase in expenses since issuance. As of January 2004 the weighted average portfolio occupancy dropped to 86.9% compared to 92.7% as of December 2002 and 97% at issuance. The increase in expenses is attributed to a significant increase in insurance, utilities and repairs and maintenance. The YE 2003 DSCR was 1.41x compared to 1.59x at issuance. Due to the continued declines in occupancy and NCF, the credit assessment is lowered, but remains investment grade. Three of the four remaining credit assessed loans, maintain investment grade credit assessments. Federal Express (4%), Wisconsin Trade Center (1.3%) and Shoreline Investment V (2.2%) have performed at or better than issuance with a YE 2003 weighted average DSCR of 2.15x compared to 1.94x at issuance. Shoreline Investments I (0.7%) is currently in special servicing and remains below investment grade. MRH ENTERPRISES: Case Summary & 20 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: MRH Enterprises Inc. 430 North Vineyard #303 Ontario, California 91764 Bankruptcy Case No.: 04-23554 Type of Business: The Debtor operates a restaurant. Chapter 11 Petition Date: December 20, 2004 Court: Central District of California (Riverside) Judge: David N. Naugle Debtor's Counsel: Carl F. Agren, Esq. 2600 Michelson Dr. Suite 850 Irvine, CA 92612 Tel: 949-752-8999 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ GE Franchise Finances $491,044 P.O. Box 849105 Dallas, TX 75824-9105 Wells Fargo $357,731 P.O. Box 24942 Phoenix, AZ 85038 Internal Revenue Service $150,000 Ogden, UT 84201 State Board of Equalization $131,000 State of California $84,000 Employment Development Department Wells Fargo $50,925 Southern California Edison $20,410 A&A Food Service Company $18,781 Wells Fargo $16,044 Alcone Marketing Group $12,951 Chem Mark $6,746 D&D Wholesale Dist., Inc. $5,174 City of Banning $3,370 Verizon $2,785 Old Country Bakery $2,615 Standard Register Company $1,709 Pride Companies $1,659 G&R Refrigeration $952 Young Electric Sign Company $733 West Life Supply Co., Inc. $676 NEXTWAVE TELECOM: Modifies Plan & Disclosure Statement ------------------------------------------------------ NextWave Telecom Inc. filed certain modifications to the Third Joint Plan of Reorganization and Disclosure Statement previously submitted to the Bankruptcy Court on Dec. 6, 2004. The primary effect of the modifications is to enhance the potential cash distributions available under the Plan. The modifications also reflect certain technical corrections and updates to the original filing, and the inclusion of summary financial projections for NextWave Wireless LLC, the reorganized entity that would emerge from Chapter 11 upon Plan confirmation and effectiveness. "Wednesday's filing reflects efforts to optimize the elements of the Plan based on ongoing review and analysis," said NextWave Senior Vice President Michael Wack. "The material aspects of the filing improve the cash distributions available under the Plan, while preserving the ability to meet the projected funding and capital requirements of the reorganized company." Copies of the filing may be downloaded from the Company's web site at http://www.nextwavetel.com/ Headquartered in Hawthorne, New York, NextWave Telecom, Inc. -- http://www.nextwavetel.com/-- was organized in 1995 to provide high-speed wireless Internet access and voice communications services to consumer and business markets on a nationwide basis. NextWave is currently constructing a third-generation CDMA2000 1X network in all of its 95 PCS markets whose geographic scope covers more than 168 million POPs coast to coast, including all top 10 U.S. markets, 28 of the top 30 markets, and 40 of the top 50 markets. NextWave's "carriers' carrier" strategy allows existing carriers and new service providers to market NextWave's network services through innovative airtime arrangements. The company filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 98- 23303) on December 23, 1998. Deborah Lynn Schrier-Rape, Esq. of Andrews & Kurth, LLP represents the Debtor. NORTH AMERICAN: Cordes & Company Approved as Accountants -------------------------------------------------------- The U.S. Bankruptcy Court for the District of North Dakota gave North American Bison Cooperative and its debtor-affiliates permission to employ Cordes & Company as their accountants and financial advisors. Cordes & Company will: a) advise the Debtors on the financial aspects of formulating a plan of reorganization including analysis of historical results, preparation of pro-forma financial statements, valuations and other related financial aspects for a proposed plan; b) advise and assist the Debtors in their review, analysis and negotiation of any proposed post-petition financings, reorganizations, and other issues associated with the settlement the Debtors' creditors claims; and c) provide the Debtors with all other accounting and financial related services which they will require in their chapter 11 cases. Edward B. Cordes, a C.P.A. and Principal at Cordes & Company, is the lead professional for the Debtors. Mr. Cordes will bill the Debtors at $245 per hour. Mr. Cordes reports his Firm's professionals bill: Designation Hourly Rate ----------- ----------- Accountants $185 Paraprofessional 60 Cordes & Company assures the Court that it does not represent any interest adverse to the Debtors or their estates. Headquartered in New Rockford, North Dakota, North American Bison Cooperative -- http://www.newwestfoods.com/-- is a cooperative with approximately 330 rancher members, and it processes and markets bison meat. The Company filed for chapter 11 protection on November 1, 2004 (Bankr. D. N.D. Case No. 04-31915). Steven J. Heim, Esq., at Dorsey & Whitney represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $8,541,385 in total assets and $24,480,905 in total liabilities. NORTH AMERICAN: Gets Final Okay to Use Lender's Cash Collateral --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of North Dakota gave North American Bison Cooperative and its debtor-affiliates permission, on a permanent basis, to use cash collateral securing repayment of prepetition obligations to their primary lender, Security State Bank of North Dakota. The Debtors need access to the cash collateral to preserve the value of their business enterprises, prevent harm to their estates during the course of their chapter 11 cases, and to continue to operate their businesses in as normal a fashion as possible. The Debtors owe Security State approximately $4 million, including accrued interest, fees, costs and other charges, under a prepetition Loan Agreement dated February 17, 2000. State Security's loan is secured by a security interest in all of the Debtors' equipment, machinery, inventory, raw materials, accounts receivable, contract rights and general intangibles. The Debtors' promise to adhere to a Monthly Budget projecting: For the Month Ending Jan. 5 Feb. 5 Mar. 5 Apr. 5 ------ ------ ------ ------ Total Cost of Goods Sold 811,446 839,665 1,259,224 803,943 Gross Profit 150,446 205,177 286,447 167,209 Total Operating Expenses 286,208 302,441 328,365 276,886 EBIDTA (135,762) (97,264) (41,918) (109,677) Total Income & Expenses (37,010) (37,022) (38,034) (38,946) Net Income (Loss) (217,772) (179,286) (82,202) (193,623) _________________________________________________________________ May 5 June 5 July 5 ----- ------ ------ Total Cost of Goods Sold 1,170,736 941,250 1,314,101 Gross Profit 336,647 229,495 430,214 Total Operating Expenses 288,262 319,157 306,770 EBIDTA (48,385) 89,662 123,444 Total Income & Expenses (38,852) 38,759 38,547 Net Income (Loss) (45,467) 128,421 84,897 To adequately protect State Security's interest, the Debtors have agreed to grant State Security a Replacement Lien in an amount equal to the Debtors' actual use of the cash collateral and any diminution in the value of State's interest in the prepetition collateral subsequent to the Petition Date. Headquartered in New Rockford, North Dakota, North American Bison Cooperative -- http://www.newwestfoods.com/-- is a cooperative with approximately 330 rancher members, and it processes and markets bison meat. The Company filed for chapter 11 protection on November 1, 2004 (Bankr. D. N.D. Case No. 04-31915). Steven J. Heim, Esq., at Dorsey & Whitney represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $8,541,385 in total assets and $24,480,905 in total liabilities. OWENS CORNING: Wants to Set Up Protocol for Asbestos PD Claims -------------------------------------------------------------- Owens Corning and its debtor-affiliates seek the entry of a case management order to establish deadlines and set forth the steps the parties will follow to liquidate the remaining property damage claims. J. Kate Stickles, Esq., at Saul Ewing, in Wilmington, Delaware, relates that the Proposed CMO would establish procedures that would automatically be implemented beginning in February 2005. The Debtors' objections to asbestos property damage claims, which were filed prior to December 3, 2005, and which have not yet been resolved, will be resolved in accordance with the Proposed CMO. On or before February 1, 2005, the Debtors will file any additional substantive objections to asbestos property damage claims. Responses to the objections will be due on April 29, 2005. The Court-appointed mediator for the property damage claims will report to the U.S. District Court for the District of Delaware on the status of mediation by the February 28, 2005, omnibus hearing. Consistent with the March 31, 2003 Court Order, asbestos property damage claims against the Debtors are limited to those buildings or discrete locations for which claimants provided the Debtors with at least a name and address. Furthermore, the proposed CMO will include these terms: A. New Product Identification Data (a) By no later than February 15, 2005, each PD Claimant must submit: * a statement that the PD Claimant intends to conduct testing to determine the product identification of suspected asbestos containing products at Claim Sites, and the Claim Sites at which it intends to do so; * the name, address and telephone number of the party that will conduct the testing; * the type of testing that the PD Claimant intends to perform, and the method for analyzing and reporting the results of the testing; and * a proposed schedule for the completion of the testing, by Claim Site, by no later than April 15, 2005. For each Claim Site at which testing is planned, the Claimant must give the Debtors at least three weeks' notice of the testing, and must allow the Debtors to attend the testing through their agents, and to film or photograph the testing, and to conduct their own testing. (b) If the Debtors elect to conduct their own testing at the Claim Sites, the Debtors must notify the PD Claimant at least one week in advance of the PD Claimant's planned testing and provide the PD Claimant with these information: * the Claim Site at which the Debtors intend to conduct the testing; * the name, address and telephone number of the party that will conduct the testing; and * the type of testing that the Debtors intend to perform, and the method for analyzing and reporting the results of the testing. (c) All testing by the PD Claimant or the Debtors must be completed by April 15, 2005, and all test results and supporting documentation must be exchanged by the parties by April 29, 2005. (d) If any party records the testing at any location by any means -- through videotape, photograph, etc. -- it must offer to make available each recording to the other side, at the other side's expense, by April 15, 2005. (e) No testing performed after April 15, 2005, will be permitted in support of any asbestos property damage claim filed against the Debtors, nor will any testing be admitted that is not in conformance with these procedures, unless it is "pre-existing" test data. B. Pre-existing Product Identification Test Data For each Claim Site for which the PD Claimant asserts a claim, the PD Claimant must produce by April 15, 2005, the results of all asbestos testing, surveys or inspections, including OSHA testing and AHERA clearance testing, previously performed at that location and all documents relating to the pre-existing test data. All documentation relating to the pre-existing data will be produced by April 15, 2005. C. Information on Other Asbestos Sources For each Claim Site for which the PD Claimant asserts a claim, the PD Claimant must produce by April 15, 2005, all documents that relate to other sources of asbestos in the building, including asbestos inspection and survey reports, asbestos operations and management plans, or any similar documents. D. Limitations Period Information For each Claim Site for which the Claimant has provided product identification information, the Claimant must, by April 15, 2005, state, to the best of its knowledge, information and belief: * the year or years when asbestos-containing products manufactured or sold by the Debtors were installed; * whether the asbestos containing products manufactured or sold by the Debtors have been removed, and if so, in what year or years; * if the asbestos-containing products manufactured or sold by the Debtors are still in the building, the date on which the Claimant determined that the products were unreasonably dangerous, and the basis for the determination; and * any plans for the removal of the asbestos containing products manufactured or sold by the Debtors. E. Damages-related Information For each Claim Site for which the Claimant has provided product identification information, the PD Claimant must, by April 15, 2005, state: * if the PD Claimant intends to seek residual or replacement cost as a component of damages, the estimated current valuation of the residual value of the Debtors' asbestos-containing products alleged to have caused property damage; * if the PD Claimant intends to seek removal costs as a component of damages, the estimated incremental cost of removal of the asbestos-containing products manufactured or sold by the Debtors, compared to similar products which do not contain asbestos; and * any other costs the PD Claimant intends to seek as damages, and the basis for recovery of the costs. F. Document Discovery from the Debtors Any requests for the production of documents from the Debtors must be served by February 18, 2005. The Debtors will respond to all reasonable requests by April 29, 2005. G. Status Conference A status conference will be held regarding all remaining asbestos PD claimants during the regularly scheduled omnibus hearing on May 16, 2005. If the parties deem it necessary, at the status conference, the Court will set a deadline for depositions, additional discovery and dispositive motions. The Proposed CMO acknowledges that certain parties have already provided the Debtors with information responsive to the CMO in response to the March 31 Order and is not intended to require any party to provide any additional information. The Proposed CMO makes clear that in estimating or allowing any asbestos property damage claim, the Court will only consider information which has been produced with the proof of claim form, in response to the Proposed CMO or the March 31 Order. Ms. Stickles contends that the proposed CMO will provide an orderly and equitable procedure to enable the claimants to provide support for their claim, and for the Debtors to analyze the claims and determine the most fair and efficient manner to resolve the claims, whether it be by estimation or litigation. Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com/-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom, represents the Debtors in their restructuring efforts. At Sept. 30, 2004, the Company's balance sheet shows $7.5 billion in assets and a $4.2 billion stockholders' deficit. The company reported $132 million of net income in the nine-month period ending Sept. 30, 2004. (Owens Corning Bankruptcy News, Issue No. 90; Bankruptcy Creditors' Service, Inc., 215/945-7000) PAXSON COMMUNICATIONS: Moody's Has Long-Term Liquidity Concerns --------------------------------------------------------------- Moody's Investors Service lowered Paxson Communications Corporation's speculative grade liquidity rating to SGL-3 from SGL-2. The SGL-3 rating reflects Paxson's adequate liquidity profile as projected over the next twelve months. The downward revision to the SGL rating incorporates our expectation that Paxson may be unable to cover fixed charges and capital expenditure requirements with operating cash flow over the time horizon of the liquidity rating. Thus, going forward, Paxson may not remain free cash flow neutral and it is our belief that while Paxson's moderate cash balances (about $80 million as of 3Q'04) provide sufficient near term liquidity to comfortably service all of the company's obligations, Paxson is likely to burn slowly through this cushion. Also influencing the rating, Moody notes that cash flow and existing cash balances provide only minimal coverage relative to the Paxson's total debt burden (about 3% of total debt including preferreds). The SGL-3 rating also considers the continuing challenges Paxson faces regarding its operating strategy, and the potential for a still weaker operating environment in 2005 as the company repositions the PAX TV network. The liquidity rating benefits from the lack of any restrictive financial maintenance covenants and the absence of near-term debt amortization. Despite the lack of a revolving credit facility, Moody's believes that Paxson has sufficient cash to support operations over the next twelve months. Additionally, Moody's believes that Paxson will exceed its asset coverage-based covenant tests by a comfortable margin over the rating horizon. Paxson's assets are largely encumbered by the senior secured floating rate notes. The floating rated notes are secured by substantially all of the company's assets and benefit from unconditional guarantees by all of the company's subsidiaries. However, we believe Paxson's large portfolio of stations, which have sold at attractive prices, provide an alternate source of liquidity. While we believe that it is unlikely that Paxson will have to redeem NBC's ownership of its $584 million in convertible preferred stock (representing about a 32% interest in the company), there is increasing financial uncertainty. Ultimately, the absence of re-financing options for Paxson is likely to force a sale given the company's unsustainable capital structure. Paxson Communications is rated B2 on a senior implied basis. The company operates the largest U.S. television station group, reaching approximately 89% of U.S. television households via nationwide broadcast television, cable and satellite distribution systems. It is headquartered in West Palm Beach, Florida. * * * As reported in the Troubled Company Reporter on June 12, 2003, Moody's Investors Service's ratings on Paxson Communications Corp. took a downward slide after the investors service's review. Outlook is revised to stable from negative. Downgraded Ratings * approximately $355 million of bank facilities to B1 from Ba3, * approximately $556 million of senior subordinated notes to Caa1 from B3, * approximately $366 million of cumulative exchangeable junior preferred stock to Caa2 from Caa1, * senior implied rating to B2 from B1, * senior unsecured issuer rating to B3 from B2. On December 12, 2003, Moody's assigns B1 rating on $365 million issuance of floating rate notes. PENN TRAFFIC: Files Amended Plan & Disclosure Statement ------------------------------------------------------- The Penn Traffic Company (OTC: PNFTQ.PK) filed its First Amended Plan of Reorganization and Disclosure Statement with the U.S. Bankruptcy Court for the Southern District of New York, which describes its intention to consummate a sale-leaseback transaction with respect to its distribution centers upon emergence from chapter 11. Under the sale-leaseback transaction, Penn Traffic will sell five of its owned distribution centers located in New York and Pennsylvania to Equity Industrial Partners Corp. for $37 million, and Equity Industrial will lease the distribution centers back to Penn Traffic for an initial term of 15 years, with four consecutive five year options to renew the lease (except that the lease term will end no later than the 14th anniversary of the expiration of the initial term with respect to the Pennsylvania distribution centers). In addition to the proceeds of the sale- leaseback transaction, Penn Traffic expects to fund its operations upon emergence from chapter 11 with a working capital revolving credit facility. Penn Traffic filed its initial Plan of Reorganization and Disclosure Statement on August 20, 2004, but postponed the hearing to approve the Disclosure Statement to explore multiple compelling proposals for a sale-leaseback transaction with respect to its owned properties. Following extensive negotiations with several potential buyers, Penn Traffic concluded that the sale-leaseback transaction with Equity Industrial Partners Corp., together with a working capital revolving credit facility, would provide the Company with the most optimal levels of liquidity to repay all of its current senior secured bank debt in full, to invest in continuing to modernize and enhance its store base, and for other working capital needs after emerging from chapter 11. The Company expects to emerge from chapter 11 in the first quarter of 2005. A hearing to approve the Amended Disclosure Statement is scheduled for Jan. 27, 2005 at 10:00 a.m. Robert Chapman, President and Chief Executive Officer of Penn Traffic, said: "We are very pleased to have reached agreement with Equity Industrial Partners Corp. to sell and then lease back our five distribution centers. This transaction will help provide the Company with the financial strength and flexibility to emerge from chapter 11 with dramatically reduced debt and strong liquidity to fund our operations going forward. The Company is now well- positioned to complete our restructuring efforts within the next couple of months, and to come out of the chapter 11 with a solid core of very healthy and competitive supermarkets, together with strong bakery and wholesale/franchise operations. We are very excited and optimistic about Penn Traffic's future." Headquartered in Rye, New York, The Penn Traffic Company distributes through retail and wholesale outlets. The Group through its supermarkets carries on the retail and wholesale distribution of food, franchise supermarkets and independent wholesale accounts. The Company filed for chapter 11 protection on May 30, 2003 (Bankr. S.D.N.Y. Case No. 03-22945). Kelley Ann Cornish, Esq., at Paul Weiss Rifkind Wharton & Garrison, represent the Debtors in their restructuring efforts. When the grocer filed for protection from their creditors, they listed $736,532,614 in total assets and $736,532,610 in total debts. PHOTOWORKS INC: Discloses $6.5 Million Recapitalization Plan ------------------------------------------------------------ In a deal valued at approximately $6.5 million, PhotoWorks, Inc. (OTCBB:FOTO) announced that it has successfully negotiated a recapitalization plan that, if approved by shareholders, will result in a simplified capital structure for the Company and a cash infusion to strengthen the Company's balance sheet and expand PhotoWorks' digital marketing activities. "We have received a commitment from a group of investors for a $4 million capital investment," said Philippe Sanchez, PhotoWorks' President and CEO. "In addition, holders of $2.5 million outstanding subordinated debentures have agreed to convert their securities to common stock as have holders of Series A Preferred stock. These conversions to common stock are contingent upon approval by the Company's shareholders of a recapitalization plan to be submitted at the upcoming annual meeting scheduled to be held in March 2005." "This recapitalization proposal is a major achievement for PhotoWorks and its shareholders," continued Sanchez. "Upon shareholder approval, the Company will be free of long-term debt, will have a simple common stock capital structure devoid of any liquidation preferences, and will have growth capital needed to position the Company for rapid growth in the booming digital market." Terms of the Cash Infusion Subject to negotiation of definitive agreements and customary closing conditions, Sunra Capital Holdings, Orca Bay Partners and Madrona Venture Group will purchase $2 million in subordinated notes, convertible into common stock at a conversion price of $.1078 per share and warrants to purchase an additional approximately 1.9 million shares of common stock at a price of $.21 per share. These subordinated notes will automatically convert into common stock at the conversion price upon approval by the Company's shareholders of the recapitalization proposal outlined below. In addition, upon approval of the recapitalization proposal, the investor group will purchase an additional $2 million of common stock at $.1078 per share and warrants to purchase an additional 1.9 million shares at $.21 per share. Recapitalization Proposal Subject to shareholders approval, the holders of the Series A Preferred Stock and the holders of the Company's outstanding subordinated debentures have agreed with the Company on a recapitalization proposal. Under this proposal, Series A Preferred Stock will convert to 20,746,888 shares of common stock at a conversion price of $.723 per share. The holders of the subordinated debentures will convert the $2.5 million principal balance of the debentures due April 2006 into common stock at a conversion price of $.11 per share. The current conversion price of the Series A Preferred Stock is approximately $4.62 per share and the conversion price of the subordinated debentures is approximately $.736 per share. The proposed plan also includes an increase of approximately 17.5 million shares eligible for grant under the Company's stock option plans for management incentives. If shareholders approve the above plans, the total outstanding share count, including outstanding warrants and options and options available for grant, will be approximately 128 million shares. New Board Composition and Recapitalization Plan to be Submitted for Approval by the Shareholders At the annual meeting, a representative from Sunra Capital Holdings and a representative from the subordinated debt holders will be nominated as directors of the Company's board. In addition, the Company will seek to amend its articles of incorporation to eliminate its staggered board and provide for cumulative voting in the election of its directors. The Company will submit its recapitalization proposal for shareholder approval at the upcoming annual meeting. If the recapitalization plan is not approved by the shareholders, the investor group will not be required to fund the additional $2 million of their commitment and the new $2 million subordinated notes will not automatically convert into common stock and will remain outstanding with an interest rate of 6% per annum and a maturity date of April 30, 2008. In addition, the holders of the Series A Preferred Stock will not convert their shares into common stock. Likewise, the holders of the current subordinated debentures will not convert into common stock and the $2.5 million principal balance will remain due in April 2006. About Orca Bay Partners Orca Bay Partners is a private equity investment firm providing equity capital for transactions ranging from recapitalizations of mature businesses to growth capital for emerging companies. Founded in 1998, and based in Seattle, Washington, Orca Bay Partners makes investments in companies that are uniquely positioned to benefit from growing or changing markets. About Madrona Venture Group Headquartered in Seattle, Washington, the Madrona Venture Group -- http://www.Madrona.com-- manages a $250 million fund that targets early state, regional investments in Enterprise Software and Services, Consumer Software and Services, and Wireless, Networking and Infrastructure. About Sunra Capital Holdings, Ltd. Sunra Capital Holdings Limited is a Bermuda-based company founded in 2002 that invests in early stage companies that have strong growth potential, competent management teams and are strategically well positioned in a growing environment. About PhotoWorks PhotoWorks, Inc. (OTCBB:FOTO) is an online photography services company. With a 25-year national heritage (formerly known as Seattle FilmWorks), PhotoWorks helps photographers - both film and digital - share and preserve their memories with innovative and inspiring products and services. Every day, photographers send film, memory cards and CDs, or go to http://www.photoworks.comto upload, organize and email their pictures, order prints, and create Signature Photo Cards and Custom Photo Books. Offering a 100% satisfaction guarantee, PhotoWorks has been awarded an "Outstanding" rating by The Enderle Group technology analysis firm. Formerly Seattle FilmWorks, PhotoWorks(R) -- whose June 26, 2004, balance sheet showed a stockholders' deficit of $1,199,000 -- has been delivering high-quality photographs to customers for 25 years. The Company is dedicated to providing innovative and inspiring ways for people to create, share and preserve their memories. Every day, digital and film photographers come to http://www.photoworks.comto upload, enhance and print their best photographic memories, simply and conveniently. The Company, which offers a 100% satisfaction guarantee, has been awarded an "Outstanding" rating by the Enderle Group technology analysis firm. Based in Seattle, PhotoWorks is publicly traded (OTCBB:FOTO). PORTAL SOFTWARE: Nasdaq Threatens to Delist Common Stock -------------------------------------------------------- Portal Software, Inc. (Nasdaq:PRSF)(Nasdaq:PRSFE) announced that on Dec. 21, 2004, it received a Nasdaq Staff Notification stating the Company is not in compliance with Nasdaq's Marketplace Rule 4310(c)(14) because the Company has not yet filed its Report on Form 10-Q for its quarter ended October 29, 2004. According to Nasdaq regulations, Portal was informed that unless a hearing is requested by the Company, its common stock will be delisted from the Nasdaq at the opening of business on December 29, 2004. In accordance with Nasdaq's rules, Portal will file an appeal to request a hearing. Requesting the hearing will stay the delisting until the hearing panel has rendered a decision. Additionally, Nasdaq's notification stated that at the opening of business on December 22, it will add an "E" to the end of Portal's ticker symbol until the Company has fulfilled its SEC reporting obligation. As such, starting at the opening of business on December 22, Portal will trade under the ticker symbol "PRSFE." About Portal Software, Inc. Portal is the leading worldwide provider of billing and Revenue Management solutions for the global communications and media markets. The Company delivers the only platform for the end-to- end management of customer revenue across offerings, channels and geographies. Portal's solutions enable companies to dramatically accelerate the launch of innovative, profit-rich services while significantly reducing the costs associated with legacy billing systems. Portal is the Revenue Management partner of choice to the world's leading service providers including: Vodafone, AOL Time Warner, Deutsche Telekom, TELUS, NTT, China Telecom, Reuters, Telstra, China Mobile, Telenor Mobil, and France Telecom. PORTER SQUARE: Moody's Puts Ba3 Rating to Preference Shares ----------------------------------------------------------- Moody's Investors Service assigned ratings to the following classes of notes issued by Porter Square CDO II, Ltd.: * Aaa to the U.S. $228,000,000 Class A-1 Senior Secured Floating Rate Notes due 2040; * Aaa to the $65,000,000 Class A-2 Senior Secured Floating Rate Notes due 2040; * Aa2 to the U.S. $23,500,000 Class B Senior Secured Floating Rate Notes due 2040; * A2 to the U.S. $10,000,000 Class C Mezzanine Secured Deferrable Floating Rate Notes due 2040; and * Baa2 to the U.S. $9,000,000 Class D Mezzanine Secured Deferrable Floating Rate Notes due 2040. Moody's also assigned a rating of Ba3 to the Issuer's Preference Shares with respect to return of principal only. TCW Asset Management Company will serve as Investment Advisor of the transaction. According to Moody's, its ratings on the notes address the ultimate cash receipt of all required interest and principal payments, as provided by the notes' governing documents, and are based on the expected loss posed to noteholders relative to the promise of receiving the present value of such payments, the characteristics of the collateral pool and the transaction's legal structure. RAINBOW MEDIA: S&P Places Low-B Ratings on CreditWatch Positive --------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B' corporate credit rating for Rainbow Media Enterprises, Inc., and ratings for the company's Rainbow National Services LLC subsidiary on CreditWatch with positive implications. This follows parent Cablevision Systems Corp.'s 8K filing on Dec. 20, 2004, in which it indicated that its board of directors has decided to suspend pursuing the spin-off of its RME subsidiary in its previously announced form and instead pursue strategic alternatives for its Rainbow direct broadcast satellite -- DBS -- business. "If RME is not spun off, then the corporate credit rating on the company could be raised to as high as the rating level of parent Cablevision (BB/Watch Neg/--), depending on the amount of explicit or implicit support from Cablevision of RME's debt," explained Standard & Poor's credit analyst Catherine Cosentino. The CreditWatch listing on the Cablevision ratings reflects the material weakening to the parent company's credit profile that could occur if it continues to own and operate the satellite business and supports the RME debt. The weakening would be exacerbated if the company also pursued the launch of additional satellites. Cablevision has already contracted with Lockheed Martin to construct five additional Ka-band satellites, with the aggregate cost expected to be about $740 million. However, the company has the right to terminate the agreement at any time, either in its entirety or with respect to individual satellites. Cablevision's overall business risk could be somewhat weaker if the satellite business is not spun off, as prospects for this business remain in doubt given the high degree of competition from DBS operators The DIRECTV Group, Inc., and EchoStar Communications Corp., which collectively have about 24 million subscribers. Moreover, if the satellite business is discontinued in 2005, the company's credit profile could still be under some pressure due to the $1.4 billion of initial debt incurred by Cablevision's Rainbow National Services LLC subsidiary to fund the business and uncertainty about the potential alternative use of cash derived from these financings. "While the credit profile and concomitant corporate credit rating of Cablevision could be pressured under either of these scenarios, the rating on RME could be higher than the current 'B' rating, depending on the amount of explicit or implicit support from Cablevision," added Ms. Cosentino. "Even if the corporate credit rating for RME is not equalized with that for Cablevision, Cablevision's ownership could support a higher rating. Conversely, if RME is spun off on terms materially similar to the previous plan, then the rating on RME would be affirmed with a negative outlook, reflecting the high business risk of the business plan and incremental risk associated with the potential launch of additional satellites." RED HAT: Reports $10.8 Mil. Net Income for 3rd Quarter 2004 ----------------------------------------------------------- Red Hat, Inc. (NASDAQ: RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for the third quarter ended November 30, 2004. Revenue for the third quarter of fiscal 2005 was $50.9 million, 55% higher than the third quarter of fiscal 2004 and a sequential increase of 10% when compared to $46.3 million in the second quarter of fiscal 2005. Subscription revenue was $39.2 million, or 80% higher than the third quarter of fiscal 2004 and a sequential increase of 12% when compared to the previous quarter. For the third quarter of fiscal 2005, the company reported income before taxes of $11.3 million compared to income before taxes of $11.2 million in the prior quarter, and $4.3 million in the third quarter of fiscal 2004. For the third quarter of fiscal 2005, the company reported net income of $10.8 million, or $0.06 per share, after taxes of $0.4 million. This represents an increase in net income of 155% compared to the same quarter a year ago, and a decrease of 8% compared to net income of $11.8 million, or $0.06 per share in the prior quarter, when a tax benefit of $0.6 million was recognized. The company generated $29.7 million in cash flow from operations during the third quarter of fiscal 2005. After investing $45.2 million to purchase 3.4 million treasury shares, the company ended the quarter with cash and investments totaling $979 million. In the third quarter of fiscal 2005, the company increased its deferred revenue balance to $121.4 million, a sequential increase of $21.7 million, or 22%, as compared to the second quarter of fiscal 2005, and a 170% increase when compared to a year ago. Highlights for the third quarter include: -- Sales of subscriptions of Red Hat Enterprise Linux reached 132,000 units, including 119,000 subscriptions to enterprise IT servers and 13,000 subscriptions to the HPC/hosting marketplace and desktops. All these numbers represent net new and renewed subscriptions. -- Income from operations increased to $7.6 million, or 15% of total revenue. -- Enterprise subscription gross margins remained strong at 91%; overall gross margins were 80%. -- The company added 10% to the workforce, principally in customer facing sales and support positions, as the company expands globally. "We are pleased with our progress and continued growth. We are focusing on those things that bring value to our customers globally, and that make it easier for them to do business with us. We believe that our results reflect continued improvements and validation of our subscription model," stated Charlie Peters, Executive Vice President and Chief Financial Officer. About Red Hat, Inc. Red Hat, the world's leading open source and Linux provider is headquartered in Raleigh, North Carolina with satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training, and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's Open Source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com. Red Hat, the world's leading open source and Linux provider. Red Hat is headquartered in Raleigh, North Carolina. With satellite offices spanning the globe. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training, and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's Open Source strategy offers customers a long-term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. * * * As reported in the Troubled Company Reporter on June 28, 2004, Standard & Poor's Ratings Services assigned its 'B' corporate credit and senior unsecured ratings to Raleigh, North Carolina- based Red Hat, Inc. RELIANT ENERGY: Fitch Lifts Ratings on Three Layers of Debt ----------------------------------------------------------- Reliant Energy, Inc.'s credit ratings have been upgraded by Fitch Ratings: -- $1.1 billion outstanding senior secured notes to 'BB-' from 'B+'; -- Senior unsecured debt (indicative) to 'B+' from 'B'; -- $275 million outstanding convertible senior subordinated notes to 'B' from 'B-'. At the same time, Fitch has assigned a final 'BB-' rating to the following new RRI debt issuances: -- $1.3 billion secured term loan B due 2010; -- $1.7 billion secured revolving credit facility due 2009; -- $750 million 6.75% senior secured notes due 2014; Fitch also assigns a 'BB-' rating to this issue for Pennsylvania Economic Development Financing Authority -- PEDFA: -- $500 million 6.75% exempt Facilities Revenues Bonds due Dec. 1, 2036. The bonds relate to RRI's Reliant Energy Seward, LLC, project, a newly constructed 520 megawatt waste coal generating facility. Principal and interest on the PEDFA bonds will be payable from, and secured by, a pledge of installment payments under a separate loan agreement with Seward which in turn is guarantee by RRI. The RRI guarantee is secured by substantially the same collateral package supporting RRI's corporate senior secured notes and secured credit facilities. The PEDFA bonds consist of these issuances: -- $150 million series 2001A; -- $75 million series 2002A; -- $75 million series 2002 B; -- $100 million series 2003A; -- $100 million series 2004A The Series 2001A, 2002A , 2002B and 2003A bonds, previously issued in the variable-rate mode, have been re-issued in the long-term interest rate mode and will no longer be supported by letters of credit. Accordingly, Fitch has simultaneously withdrawn the 'AAA/F1+' rating previously assigned to the Series 2001A, 2002A and 2002B bonds that had been based on the letters of credit issued by Westdeutsche Landesbank Girozentrale, as well as the 'AA+/F1+' rating assigned to the series 2003A bonds, previously based on the Barclays Bank PLC letter of credit. The rating action referenced above reflects the successful conclusion of RRI's global refinancing program and is consistent with Fitch's expected ratings outlined in a press release dated Nov. 29, 2004. The Positive Rating Outlook reflects the expectation that RRI's ongoing cost-saving and balance sheet deleveraging initiatives will result in gradual improvement in consolidated credit measures through 2006, even under a scenario that assumes limited recovery in current wholesale power market conditions and lower levels of retail energy cash flow performance. For additional information, please refer to the press release dated Nov. 29, 2004, Fitch Places Reliant Energy on Rating Watch Positive, available on the Fitch Ratings website at http://www.fitchratings.com/ RESTRUCTURED ASSET: S&P Puts BB Ratings on Seven Cert. Classes -------------------------------------------------------------- Standard & Poor's assigned its 'BB' rating to Restructured Asset Certificates with Enhanced Returns -- RACERS -- Series 2004-25-TR's notes. The rating of the class A-1 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings, Inc., ('A') and the reference obligation, commercial mortgage pass-through certificates series 2004-C1 class K notes, issued by Credit Suisse First Boston Mortgage Securities Corp. due January 2037 ('BB'). The rating of the class A-2 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings Inc. ('A') and the reference obligation, commercial mortgage pass-through certificates series 2004-C11 class K notes, issued by Wachovia Bank Commercial Mortgage Trust 2004-C11 due January 2041 ('BB'). The rating of the class A-3 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings Inc. ('A') and the reference obligation, commercial mortgage pass-through certificates series 2004-GG1 class K notes, issued by Greenwich Capital Commercial Funding Corp. due June 2036 ('BB'). The rating of the class A-4 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings Inc. ('A') and the reference obligation, commercial mortgage pass-through certificates series 2004-C3 class K notes, issued by GE Commercial Mortgage Corp., due July 2039 ('BB'). The rating of the class A-6 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings Inc. ('A') and the reference obligation, commercial mortgage pass through certificates series 2004-C7 class M notes, issued by LB-UBS Commercial Mortgage Trust 2004-C7 due October 2036 ('BB'). The rating of the class A-7 notes reflects the credit quality of the swap guarantor, Lehman Brothers Holdings Inc. ('A') and the reference obligation, commercial mortgage pass-through certificates series 2004-C4 class M notes, issued by LB-UBS Commercial Mortgage Trust 2004-C4 due June 2036 ('BB'). The ratings address the likelihood of the trust making payments on the notes as required under the related indentures. Rating Assigned Restructured Asset Certificates with Enhanced Returns Series 2004-25-TR Class Ratings Amount (mil. $) ----- ------- --------------- A-1 BB 10.0 A-2 BB 10.0 A-3 BB 10.0 A-4 BB 10.0 A-6 BB 10.0 A-7 BB 3.0 SARATOGA ASSOCIATES: Case Summary & Largest Unsecured Creditor -------------------------------------------------------------- Debtor: Saratoga Associates L.P. c/o Gerald L. Bader, Jr. Esq. Bader & Associates, LLC 14426 East Evans Avenue #200 Denver, Colorado 80014 Bankruptcy Case No.: 04-37396 Chapter 11 Petition Date: December 21, 2004 Court: District of Colorado (Denver) Judge: Sidney B. Brooks Debtor's Counsel: Gerald L. Bader, Jr., Esq. Bader & Associates, LLC 14426 East Evans Avenue #200 Denver, CO 80014 Tel: 303-534-1700 Estimated Assets: $1 Million to $10 Million Estimated Debts: $500,000 to $1 Million Debtor's Largest Unsecured Creditor: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Union National Life Ins. Deed of Trust $722,000 Company c/o Bomneville Mortgage Company 111 E. Broadway #1250 Salt Lake City, UT 84111 SEROLOGICALS CORP.: Raises $105 Million in Public Stock Offering ---------------------------------------------------------------- Serologicals Corporation (NASDAQ:SERO) closed its previously announced public offering of 4,830,000 shares of its Common Stock at a price of $22.80 per share. The Company obtained net proceeds, after deduction of underwriting discounts and commissions but before expenses, of $105.16 million from the offering. David A. Dodd, President and Chief Executive Officer of Serologicals, stated, "We are very pleased at the reception of our offering. Demand for our shares was significant, leading the underwriters to exercise their entire over-allotment option of 630,000 shares. Serologicals received approximately $13.7 million of additional net proceeds as a result of the exercise of the over-allotment option. After using approximately $80 million to repay our term indebtedness, we will have additional resources to continue to pursue our strategic growth strategy." J.P. Morgan Securities Inc. served as the sole bookrunning manager for the offering. Banc of America Securities LLC and Pacific Growth Equities, LLC were co-managers. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. A registration statement relating to these securities has been filed with and declared effective by the Securities and Exchange Commission. Copies of the prospectus relating to the offering may be obtained from the offices of J.P. Morgan Securities, Inc., Chase Distribution & Support Service, 1 Chase Manhattan Plaza, Floor 5B, New York, NY 10081. About the Company Serologicals Corporation, headquartered in Atlanta, Georgia, is a global provider of biological products, enabling technologies and services to a diverse customer base that includes major life science companies and leading research institutions. Our customers use our products, technologies and services in a wide variety of their activities, including basic research, drug discovery, diagnosis and biomanufacturing. Our products, technologies and services are essential tools for research in key disciplines, including neurology, oncology, hematology, immunology, cardiology, proteomics, infectious diseases, cell signaling and molecular biology. * * * As reported in the Troubled Company Reporter on Dec. 21, 2004, Standard & Poor's Ratings Services revised the outlook on life science company Serologicals Corporation to positive from stable in light of the company's use of equity financing to repay acquisition-related debt. The 'B+' corporate credit, 'BB-' bank loan, and 'B-' subordinated debt ratings on Atlanta, Georgia-based Serologicals are affirmed. The recovery rating of '1' is also affirmed. "The outlook revision reflects the company's improved capital structure and demonstrated commitment to the careful use of borrowings to support its growth initiatives," said Standard & Poor's credit analyst David Lugg. "The latter is evidenced by the recently completed equity offering." SFBC INTERNATIONAL: Completes PharmaNet Merger ---------------------------------------------- SFBC International, Inc. (NASDAQ:SFCC), completed its merger with PharmaNet, Inc., a private international drug development company headquartered in Princeton, New Jersey, which was previously announced on November 3, 2004. The combined entity will provide one of the most comprehensive Phase I-IV drug development service offerings across North and South America, Europe, Asia and Australia with plans to expand its presence in Central/Eastern Europe and Asia, including Japan and Singapore. Under the terms of the agreement, SFBC purchased 100% of the stock of PharmaNet for approximately $248.6 million in cash, including PharmaNet's estimated working capital. SFBC financed the transaction with approximately $134 million of cash from its balance sheet and $125 million drawn from new $160 million senior secured credit facilities. All 15 key PharmaNet executives signed multi-year employment agreements with SFBC and used a portion of the merger consideration to purchase SFBC common stock or acquire SFBC options. SFBC received approximately $8.9 million from the sale of common stock at $34.33 per share. Mr. Jeffrey P. McMullen will remain President and Chief Executive Officer of PharmaNet and will join the executive management team of SFBC. Mr. McMullen is expected to join SFBC's Board of Directors at SFBC's next Annual Meeting of Stockholders. The $160 million senior secured credit facilities, which were syndicated by UBS Securities LLC serving as lead arranger and sole bookrunner, consist of a $120 million Term Loan and a $40 million revolving line of credit, which replaced the Company's previous $25 million line of credit. An aggregate of $125 million was drawn under the facilities at closing. SFBC's existing $8.7 million mortgage on its Miami facility was paid off. SFBC now has total senior secured debt of $125 million and total debt, including the Senior Convertible Notes, of approximately $275 million. "This merger is an exceptional strategic fit, resulting in SFBC becoming a global top 10 contract research organization with a diversified service offering, customer mix and geographic presence," stated Arnold Hantman, Chief Executive Officer of SFBC. "We look forward to building upon our current focus to expand our services and global reach to meet the growing needs of branded pharmaceutical, biotechnology and generic drug companies worldwide. We are confident that this merger will offer a range of opportunities to expand our presence with existing clients as well as enable us to attract new clients given the increased size and scope of our resources and capabilities." Dr. Lisa Krinsky, Chairman and President of SFBC, commented, "We are extremely pleased to complete this combination, which we believe firmly establishes SFBC as a leader in the contract research marketplace. This merger creates a stronger platform for potential growth in the coming years by providing our clients with access to 2,000 employees in 25 countries on five continents. Our clients are interested in developing new drugs more quickly and in a more cost effective manner, while improving the quality and level of testing to ensure the safety and efficacy of the drugs when they come to market. This merger will enable us to provide optimal site selection, timely patient recruitment and the efficient conduct of complex worldwide clinical trials. We welcome PharmaNet's employees to SFBC and look forward to serving our clients and a broader market going forward. This merger will further enable SFBC to take a leadership role in delivering the highest quality drug development services to our clients worldwide." Jeffrey P. McMullen, President and Chief Executive Officer of PharmaNet, stated, "The closing of the merger is a significant milestone that provides PharmaNet with a unique opportunity to combine forces with a highly successful company within the contract research industry and create a much stronger organization given the highly complementary nature of our businesses. We're very excited about joining SFBC because we believe the company has the resources and commitment necessary to support our combined growth strategy. With the global PharmaNet team remaining in place combined with the support of SFBC, we are confident we can continue to build on our record of success. I look forward to playing an integral role in the future success of SFBC." Jefferies & Company acted as financial advisor to SFBC in connection with this transaction. UBS Investment Bank acted as financial advisor to PharmaNet. About SFBC International, Inc. SFBC International, Inc., is a global leader in providing early and late stage drug development services with one of the broadest and highest quality service offerings to support the growing drug development needs of the pharmaceutical, biotechnology, medical device and generic drug industries around the world. The company has more than 30 offices located in North America, South America, Europe, India, and Australia. In early clinical development services, SFBC specializes primarily in the areas of Phase I clinical trials and bioanalytical laboratory services, including early clinical pharmacology. The company also offers clinical development expertise in the following areas: strategic planning protocol/CRF design, consulting, project management, site selection and management, trial monitoring, information technology including electronic data capture, data management and biostatistics, quality control/assurance, late-stage services and regulatory affairs. Additional information is available at the Company's website at http://www.sfbci.com/ * * * As reported in the Troubled Company Reporter on Dec. 9, 2004, Standard & Poor's Ratings Services assigned its 'B+' corporate credit and bank loan ratings to SFBC International, Inc., a Miami, Florida-based provider of outsourced drug development services to the pharmaceutical industry. The 'B+' bank loan ratings apply to the company's $40 million revolving credit facility due Dec. 2009 and a $120 million term loan facility due December 2010. The new borrowings will fund the company's pending $245 million acquisition of privately held PharmaNet, Inc. At the same time, a 'B-' rating has been assigned to SFBC's existing $143.8 million senior convertible debt issue. The outlook is positive. As reported in the Troubled Company Reporter on Dec. 6, 2004, Moody's Investors Service assigned a rating of B2 to SFBC International's proposed $160 million senior secured credit facilities. Moody's also assigned a senior implied rating of B2 and a senior unsecured issuer rating of B3 to SFBC. The rating outlook is stable. New ratings assigned: * $160 million Senior Secured Credit Facilities, rated B2 * Senior Implied Rating, rated B2 * Senior Unsecured Issuer Rating, rated B3 SI GROUP, L.P.: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: SI Group, L.P. 1701 Southwest Parkway, Suite 100 College Station, Texas 77840 Bankruptcy Case No.: 04-48091 Chapter 11 Petition Date: December 22, 2004 Court: Southern District of Texas (Houston) Judge: Marvin Isgur Debtor's Counsel: Melissa Anne Haselden, Esq. Weycer, Kaplan, Pulaski & Zuber, P.C. 11 Greenway Plaza, Suite 1400 Houston, Texas 77046 Tel: (713) 961-9045 Fax: (713) 961-5341 Total Assets: $1,008,562 Total Debts: $1,749,625 Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Advanced Drilling Systems Trade $11,386 PO Box 590413 Houston, Texas 77259 American Express Trade $10,031 PO Box 650448 Dallas, Texas 75265 PSC Industrial $9,200 Outsourcing, Inc. 5151 San Felipe, Suite 1600 Houston, Texas 77056 Quad Environmental $8,219 Services, Inc. 10201 Lucore Street Houston, Texas 77017 Ana Lab Corporation Trade $8,046 TR Moore & Company Trade $6,085 Davis Oretsky PC Trade $3,874 Chemtrade Performance Trade $3,113 Chemical GE Capital Trade $1,746 Brazos County Appraisal $1,268 BIC Alliance $1,100 Waste Management-V $1,023 American Lawyer Media $790 American Express $715 Dahill Industries Trade $681 MSR, Inc. Trade $532 Copy Corner Trade $510 Prowaste $338 Cox Internet Services Trade $299 Kirk W. Brown $256 STRATEGIC SIGN COMMUNICATION: Voluntary Chapter 11 Case Summary --------------------------------------------------------------- Debtor: Strategic Sign Communication, Inc. dba Sign a Rama 2925 Carpenter Road Ann Arbor, Michigan 48108 Bankruptcy Case No.: 04-75505 Type of Business: The Company is a Sign-A-Rama franchisee. Chapter 11 Petition Date: December 17, 2004 Court: Eastern District Of Michigan (Detroit) Judge: Thomas J. Tucker Debtor's Counsel: David I. Goldstein, Esq. 2010 Hogback Road, Suite 2 Ann Arbor, Michigan 48105 Tel: (734) 971-0110 STRATUS TECHNOLOGIES: S&P Affirms B Corporate Credit Rating ----------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'B' corporate credit rating on Maynard, Massachusetts-based Stratus Technologies Inc., and removed it from CreditWatch, where it had been placed with negative implications on Oct. 8, 2004. "The rating affirmation follows the company's recent announcement of results for the second quarter of fiscal 2005, and its financial restatement," said Standard & Poor's credit analyst Martha Toll-Reed. Most of the adjustments relate to the deferral of revenues recognized in prior periods, with a moderate impact on profitability. There were no adjustments to cash balances over the restatement period. The outlook is negative. Total debt outstanding as of August 29, 2004, was approximately $182 million. The ratings on Stratus reflect a niche market position in the highly competitive global server market, which is dominated by competitors with significantly greater financial resources, and a leveraged financial profile. These factors are partially offset by a significant base of more stable and recurring service revenues. With more than 20 years of operating history, privately owned Stratus is a provider of "fault tolerant" computers and related services for mission-critical applications. Stratus' server product sales have been adversely affected by an ongoing revenue transition from products based on its proprietary operating system to industry standard-based "ftServer" products. In addition, ftServer product revenue growth has been below expectations. Stratus' strategic intent is to expand revenues and market share in the higher-growth Windows and Linux segments of the high-availability server market. The current rating reflects Standard & Poor's expectation that Stratus will be challenged to gain significant market share through sustained product innovation and differentiation. TECH DATA: Moody's Revises Outlook on Low-B Ratings to Stable ------------------------------------------------------------- Moody's Investors Service affirmed the debt ratings of Tech Data, Corp., and changed the rating outlook to stable from positive. Moody's believes the current ratings reflect the challenges in Tech Data's business model, as well as the positives of its operating efficiency. These ratings were affirmed: * Senior implied rating of Ba1; * Senior unsecured issuer rating of Ba1; * $290 million convertible subordinated debentures due 2021 rated Ba2; * Senior / subordinated shelf ratings of (P)Ba1 / (P)Ba2. The ratings reflect the expectation that Tech Data will maintain operating margin and cash flow patterns that were proven during the recent technology downturn and subsequent recovery. Both were improved during 2001 -- 2003 in comparison with the last down cycle in technology and corporate spending due Tech Data's focus on activity based costing, which improved operating efficiency, and because of its more mature footprint and focused growth plans. Efficiency ratios such as days inventory, receivables days outstanding, and return on assets have stabilized as Tech Data continued to improve fundamental businesses processes during a period of volatile sales. As a result, margins have remained within a narrow band even while sales fell and recovered during the 2001 through 2004 period. At the same time, Tech Data's operating margins have not recovered to the same extent that they did following the last downturn, largely because of continued price compression in the U.S. offset by increased profitability from the maturing European operations. While many efficiency measures outpace peers in distribution, operating margins are thinner than distributors with similar market positions and have trended down over the long term. Tech Data's long-term debt is low; and total debt has fallen from $715 million at the end of FYE January 2002 to $337 million at the end of the third quarter ended October 2004. However, Tech Data's interest expense suggests that average borrowings throughout the period are higher than indicated by quarter end balance sheets. Tech Data, like other distributors, may choose to pay vendors early in exchange for better pricing, which would improve operating margins. Cash balances have remained modest as cash flow has been used to reduce long-term debt. Tech Data's rating outlook has been changed to stable. Moody's believes the current ratings reflect thin profitability and low returns on assets, competitive factors, and overall financial profile, but also continue to recognize the strength of Tech Data's capital structure, and the value of operating improvements, which have increased operating efficiency. Despite its solid position market position, Tech Data's EBIT margin has continued to trend down over time and through multiple cycles. Operating margin was below 1.3% for the past twelve months, which represented a period of business recovery. Moody's believes competitive factors are likely to keep EBIT margin below 1.5% for the near future, leaving little cushion for unexpected events or a disruptive competitive environment. However, Moody's believes margins are likely to be more stable through anticipated business cycles as Tech Data reaps the benefits of enterprise systems built over the past four years. Low long term debt balances and low maintenance capex should allow coverage measures to remain appropriate for the rating category over cycles. Ratings could have positive pressure if Tech Data is able to demonstrate a rising trend in operating income margin and if it is able to self-fund rather than relying on external capital for operating purposes. Ratings or outlook could decline if Tech Data experiences margin volatility or demonstrates balance sheet problems, such as inventory valuations as a result of regular business cycles, which Moody's believes have been mitigated by reduction in days outstanding and improved controls. Unexpected events, which strain liquidity or interrupt normal business patterns, expansion into new markets, or a more aggressive financial policy, could also pressure ratings. Tech Data's debt protection measures are appropriate for its industry sector and rating category. Low debt balances and low maintenance capex have allowed EBITDAR less capex to fixed costs to rise above 3.5 times this year, after hovering near 3.0 times for the three prior fiscal years. Long term debt levels are low at $290 million, representing debt / EBITDA of about 1.2 times, but Moody's estimates that effective debt may double at times throughout the year as Tech Data funds seasonal operating needs. The company has a $250 million committed credit facility, a $400 million committed receivables facility, and reports more than $600 million in available uncommitted facilities. Moody's expects Tech Data to remain well within covenant levels. Tech Data Corp., headquartered in Clearwater, Florida, is a leading distributor of computers and related electronics, operating primarily in North America and Europe. Revenues are expected to be in excess of $19 billion for the fiscal year ending January 2005. TENET HEALTHCARE: Settles Patient Litigation at Redding Medical --------------------------------------------------------------- Tenet Healthcare Corporation (NYSE:THC) has reached an agreement in principle with lawyers representing former cardiac care patients at Redding Medical Center to settle substantially all patient litigation against the company and its subsidiaries arising out of allegations that unnecessary medical procedures were performed at the hospital before November 2002. Under the agreement, Tenet will establish a settlement fund by Dec. 31, 2004, of $395 million to be allocated among more than 750 plaintiffs who had filed civil lawsuits. The cases arose from allegations that certain doctors had performed unnecessary cardiac catheterizations and bypass surgeries while practicing at Redding Medical Center in Redding, Calif. The litigation against those physicians is not part of this settlement. The settlement agreement is subject to customary procedural requirements of the California state court and ratification by substantially all the individual plaintiffs. "We believe this settlement is the fair and honorable way to conclude this very sad chapter," said Trevor Fetter, president and chief executive officer. "It would likely have taken multiple trials and many years to assess liability in these cases. By settling all the cases at once, we put this matter behind both the plaintiffs and us, and we bring closure to this unfortunate event." Mr. Fetter added, "We are building a new Tenet on a solid foundation of quality, transparency, compliance and integrity, so that the safety and efficacy of the patient care our hospitals deliver is always above reproach." E. Peter Urbanowicz, Tenet's general counsel, said, "With this settlement, we take a significant step forward in resolving the serious legal challenges that Tenet has faced as a result of events that took place before November 2002. We are seriously focused on bringing to a satisfactory conclusion all our remaining litigation and investigations, and this settlement is strong evidence of our progress." Law firms representing the plaintiffs include Reiner, Simpson, Timmons & Slaughter in Redding; Barr & Mudford in Redding; Moriarty Leyendecker in Houston; Hackerman Frankel in Houston; and Gillin, Jacobson, Ellis & Larson in Orinda, Calif. Attorneys from those firms representing former patients said in a joint statement, "The former patients of Redding Medical Center can never get back what they had, but this settlement provides a measure of justice and closure. All involved in this tragedy can move forward and begin the healing process. This has been a long and difficult road for our clients. We are extremely proud of their courage and are pleased that these remarkable people are being compensated for the acts committed by these surgeons." Tenet said it has general liability insurance. It noted, however, that its insurance carriers thus far have raised objections to coverage under the policies at issue. The company said it intends to pursue vigorously its coverage rights. "In cases of this magnitude, it is a common practice for insurance companies to dispute coverage," Mr. Urbanowicz said. Tenet also said the Redding settlement would cause the company to breach certain financial covenants in its existing bank credit line, which is currently undrawn. Therefore, the company said it is in its best interests to terminate the credit line before the end of this year and negotiate a new bank credit line early next year. The company noted that, before this settlement, it had approximately $1.2 billion in cash on hand as of Friday Dec. 17, 2004. Also, the company anticipates receiving a significant tax refund in 2005 that will further bolster its liquidity. In August 2003, Tenet agreed to pay $54 million to settle federal and California government investigations of the Redding matters. Last June, the company sold substantially all the assets of Redding Medical Center to an affiliate of Hospital Partners of America Inc. Tenet Healthcare Corporation, through its subsidiaries, owns and operates acute care hospitals and related health care services. Tenet's hospitals aim to provide the best possible care to every patient who comes through their doors, with a clear focus on quality and service. Tenet can be found on the World Wide Web at http://www.tenethealth.com/ * * * As reported in the Troubled Company Reporter on Dec. 09, 2004, Moody's Investors Service assigned an SGL-4 speculative grade liquidity rating to Tenet Healthcare Corporation. At the same time, Moody's affirmed Tenet's existing long-term debt ratings (senior implied at B2) and assigned a B3 rating to Tenet Healthcare's $1 billion 9.875% senior unsecured note offering, which was issued in June of this year. The rating outlook is negative. Ratings assigned: * Tenet Healthcare Corporation: -- SGL-4 speculative grade liquidity rating; -- B3, 9.875% senior unsecured notes. Ratings affirmed: * Tenet Healthcare Corporation: -- B2 senior implied; -- B3 issuer rating; -- B3 senior unsecured note ratings. TERRA: Fitch Says Miss. Chemical Purchase Has No Rating Impact -------------------------------------------------------------- Fitch Ratings expects Terra Industries Inc.'s completed acquisition of Mississippi Chemical Corporation will have a neutral impact on credit measures in the near-term. However, Fitch believes that Terra could gain positive synergies in the future from the prudent integration and operation of Miss Chem's assets. The Rating Outlook is Positive. Fitch rates Terra's debt: -- Senior secured credit facility 'BB-'; -- 12.875% senior secured notes 'BB-'; -- 11.5% senior secured second priority notes 'B'; -- Convertible preferred shares 'CCC+'. Terra announced the completed acquisition of Miss Chem on Dec. 21, 2004. With this acquisition, Terra gains nitrogen fertilizer production in Yazoo City, Mississippi, and Donaldsonville, Louisiana. Terra now also owns a 50% interest in Point Lisas Nitrogen Ltd. in The Republic of Trinidad and Tobago. Additionally, Terra owns a deep-water terminal in Louisiana and a 50% interest in an ammonia terminal near Houston, Texas. The acquisition was funded with cash, stock and assumed debt. The transaction was valued at $268 million when announced in August 2004. Fitch believes that Terra's access to low-cost ammonia and the opportunistic and economic use of the terminal facilities could be a credit positive for Terra in the long-run. A low-cost gas source was a missing element in Terra's business. The terminals will provide access to imports and additional distribution venues. However, the benefit Terra receives from these assets will be largely due to management's prudent use of these assets. Fitch notes that Miss Chem's nitrogen segment was not consistently profitable in past years. Terra Industries, based in Sioux City, Iowa, is a major North American producer of anhydrous ammonia, UAN solutions, and ammonium nitrate and a leading U.K. producer of ammonium nitrate. For the trailing 12 month period ended Sept. 30, 2004, Terra had revenue of $1.5 billion, EBITDA of approximately $221 million, and debt of $402 million, all of which is public debt. TEV INVESTMENT PROPERTIES: Voluntary Chapter 11 Case Summary ------------------------------------------------------------ Debtor: TEV Investment Properties, LLC PO Box 9120 Columbus, Mississippi 39705-0016 Bankruptcy Case No.: 04-17998 Type of Business: The Company Chapter 11 Petition Date: December 16, 2004 Court: Northern District of Mississippi (Aberdeen) Judge: David W. Houston III Debtor's Counsel: Craig M. Geno, Esq. Jeffrey K. Tyree, Esq. Harris & Geno, PLLC PO Box 3380 Ridgeland, Mississippi 39158-3380 Tel: (601) 427-0048 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million The Debtor did not file a list of its 20 Largest Unsecured Creditors. THINK AGAIN: Whole Living Wants Chapter 11 Trustee Appointed ------------------------------------------------------------ Whole Living, Inc., (OTCBB:WLIV) will file a motion in the U.S. Bankruptcy Court for the Eastern District of Tennessee to have a trustee appointed to protect the company's damage award against Wholefood Farmacy Corp. (Pink Sheets:WFMC), et al. On Monday, December 20, Wholefood Farmacy Corp. issued a press release after market hours announcing its wholly owned subsidiary Think Again, Inc., had filed for bankruptcy protection. On November 29, 2004, the Honorable Ted Stewart for the United States District Court, District of Utah, Central Division released a memorandum decision and order finding Don Tolman, Mark Bowen, and bankrupt company Think Again, Inc., a Tennessee corporation doing business as Great American, Wholefood Farmacy Corp., in contempt for violation of a preliminary injunction granted to Whole Living, Inc., on August 2, 2003. The Court decided not to wait for trial because of the persistent violation of the preliminary injunction and awarded Whole Living preliminary damages in the amount of approximately $240,430, as well as attorney fees and costs. "As we mentioned in our December 2nd press release, Whole Living is and will continue to vigorously pursue its legal rights to protect the company's proprietary information, products, materials, and the interests of its distributors and shareholders," stated CEO Doug Burdick. "The damages awarded to our company were the result of violations of the Federal Court's Preliminary Injunction Order. Whole Living will continue to enforce its rights and recover all damages caused by Don Tolman, Mark Bowen, Wholefood Farmacy Corp., its officers and subsidiaries." Whole Living, Inc. -- http://www.thebraingarden.com/-- develops, manufactures, and distributes all natural products to five countries and all fifty states. Pulse, their core product line, is a blend of all natural ingredients that fight health problems and diseases associated with poor diets. Headquartered in Rogersville, Tennessee, Think Again, Inc. (d/b/a Great American Whole Food Farmacy) -- http://www.wholefoodfarmacy.com/-- is at the forefront of the emerging health and wellness industry. The Company's products include whole foods and Phi Plus. The Company filed for chapter 11 protection on Dec. 8, 2004 (Bankr. E.D. Tenn. Case No. 04-24141). TIAA STRUCTURED: Moody's Reviewing Ratings & May Downgrade ---------------------------------------------------------- Moody's Investors Service placed under review for downgrade two classes of notes issued by TIAA Structured Finance CDO I, Limited: * the U.S. $27,500,000 Class B Floating Rate Senior Secured Notes, due 2035 (currently rated Aa3); and * the U.S. $35,000,000 Class C Fixed Rate Senior Secured Notes, due 2035 (currently rated B1). This transaction closed on December 14, 2000. According to Moody's, its rating action results primarily from significant deterioration in the weighted average rating factor of the collateral pool and overcollateralization ratios. Moody's noted that, as of the most recent monthly report on the transaction, the weighted average rating factor of the collateral pool is 1321 (500 limit), that over 21% of the collateral pool currently has a Moody's rating of below Baa3 (10% limit) and that the Class C overcollateralization ratio is currently 91.64% (101.5% test) and that each of these attributes has deteriorated significantly since Moody's prior rating action on this transaction on October 22, 2004. Rating Action: Review For Downgrade Issuer: TIAA Structured Finance CDO I, Limited Class Description: U.S. $27,500,000 Class B Floating Rate Senior Secured Notes, due 2035 Prior Rating: Aa3 Current Rating: Aa3 (under review for downgrade) Class Description: U.S. $35,000,000 Class C Fixed Rate Senior Secured Notes, due 2035 Prior Rating: B1 Current Rating: B1 (under review for downgrade) TRANSPORTADORA DE GAS: Fitch Releases Report on Debt Exchange ------------------------------------------------------------- Fitch Ratings has released a full rating report on Transportadora de Gas del Sur -- TGS, which is available on the Fitch Ratings web site at http://www.fitchratings.com. Fitch had previously assigned a 'B-' local and foreign currency rating to the new notes issued by TGS under its exchange offer. The international ratings apply to approximately US$910 million of debt that will be outstanding after the exchange is consummated and cash payments are made. The exchange closed on Dec. 15, 2004. TRW AUTOMOTIVE: Completes $1.7 Billion Credit Pact Refinancing -------------------------------------------------------------- TRW Automotive Holdings Corp. (NYSE: TRW) successfully completed its previously announced credit agreement refinancing. The Company refinanced $1.7 billion of its existing $2.0 billion credit facilities with $1.9 billion of new credit facilities. The new facilities consist of: -- a $900 million revolving credit facility, -- a $400 million tranche A term loan facility, and -- a $600 million tranche B term loan facility. As expected, the Company retained a $300 million tranche E term loan facility that it closed during November of this year. The additional availability under the new facilities resulted from the increase in the amount of the revolving credit facility. The Company also amended certain other terms of the secured credit facilities, which together with the increased amount of available liquidity, improves the Company's financial flexibility. Proceeds from the new credit facilities will be used to refinance the existing credit facilities and to pay fees and expenses related to the financing. The initial draw under the new credit facilities is expected to occur in January of 2005. About the Company With 2003 sales of $11.3 billion, TRW Automotive ranks among the world's top 10 automotive suppliers. Headquartered in Livonia, Michigan, USA, the Company, through its subsidiaries, employs approximately 61,000 people in 24 countries. TRW Automotive products include integrated vehicle control and driver assist systems, braking systems, steering systems, suspension systems, occupant safety systems (seat belts and airbags), electronics, engine components, fastening systems and aftermarket replacement parts and services. All references to "TRW Automotive", "TRW" or the "Company" in this press release refer to TRW Automotive Holdings Corp. and its subsidiaries, unless otherwise indicated. TRW Automotive news is available on the Internet at http://www.trwauto.com/ * * * As reported in the Troubled Company Reporter on Dec. 08, 2004, Moody's Investors Service assigned Ba2 ratings for TRW Automotive Inc.'s $1.9 billion of proposed guaranteed senior secured credit facilities, which will be utilized to refinance approximately $1.7 billion of the company's existing credit facilities and also provide some additional liquidity. Moody's will withdraw the ratings of any credit facilities that are refinanced upon TRW Automotive's execution of an amended and restated credit agreement. These specific ratings were assigned: * Ba2 ratings for TRW Automotive's $1.9 billion of proposed new guaranteed senior secured credit facilities, consisting of: -- $425 million US revolving credit facility due December 2009; -- $425 million global multi-currency revolving credit facility due December 2009 (which will also have multiple permitted foreign subsidiary borrowers); -- $250 million term loan A due December 2009; -- $800 million term loan B due June 2012 UAL CORP: Judge Wedoff Says No to Special Agent for Retired Pilots ------------------------------------------------------------------ The United Retired Pilots Benefit Protection Association asks the United States Bankruptcy Court for the Northern District of Illinois to appoint an authorized representative to defend the retired pilots' rights to receive vested pension benefits. The URPBPA also wants Court permission to defend the retired pilots' interests in the Section 1113 process. The disputed benefits have accrued under the pilots' tax-qualified and non tax-qualified defined benefit pension plans. Frank Cummins, Esq., at LeBoeuf, Lamb, Greene & MacRae, in Washington, D.C., says the Court indicated that the URPBPA may intervene in the Section 1113 process. As a result, the URPBPA needs a representative to counter the UAL Corporation and its debtor-affiliates' contravention of the requirements of Section 1113. The Debtors are trying to unilaterally modify the rights of thousands of retired pilots. The retired pilots are entitled to receive collectively bargained, vested pension benefits. With the Debtors' legal and financial firepower, the URPBPA needs an authorized representative to fight for the vulnerable retired pilots. With so much at stake, the retired pilots should not be condemned to the sidelines as their financial futures are debated and, perhaps, eviscerated. * * * Judge Wedoff denies the Motion. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 70; Bankruptcy Creditors' Service, Inc., 215/945-7000) UAL CORP: Retired Pilots Assoc. Wants to Conduct Discovery ---------------------------------------------------------- The United Retired Pilots Benefit Protection Association asks Judge Wedoff to compel discovery from the UAL Corporation and its debtor-affiliates. The URPBPA seeks information on: a) proposals exchanged between the Debtors and the Air Line Pilots Association regarding termination or modification of the defined benefit plan of the retired pilots; b) the Debtors' business plan and the report by Bridge Associates; and c) actuarial information relating to the defined benefit plan for retired pilots. On December 2, 2004, the URPBPA's counsel wrote sent the Debtors' counsel discovery requests. After receiving no response, on December 6, 2004, the URPBPA's counsel sent the Debtors' counsel a follow-up letter. James H.M. Sprayregen, Esq., at Kirkland & Ellis, responded that in deference to the ALPA's wishes, the Debtors would not produce any documents or proposals that involved the ALPA. Mr. Sprayregen also refused to provide the Bridge Report. However, Mr. Sprayregen agreed to comply with all other URPBPA requests. On December 10, 2004, the Debtors sent the URPBPA a confidentiality agreement, which the URPBPA has signed. Jack J. Carriglio, Esq., at Meckler, Bulger & Tilson, explains that the retired pilots are not represented by a union. As a result, the United States Bankruptcy Court for the Northern District of Illinois told the retired pilots that they would be allowed to participate in the Section 1113 hearing on January 10, 2005. However, the URPBPA cannot meaningfully participate in the hearing without adequate information. Since the Debtors will not provide the requested information, Mr. Carriglio argues that the Court should compel the Debtors to do so. Objections (1) IAM The International Association of Machinists and Aerospace Workers wants the Bridge Report guarded. Sharon L. Levine, Esq., at Lowenstein Sandler, in Roseland, New Jersey, contends that the Bridge Report was prepared before the Debtors formulated their business plan. Therefore, the Debtors did not use the Bridge Report's findings to calculate the proposed reduction in wages and benefits under Section 1113 of the Bankruptcy Code. The URPBPA can procure the business plan and the accompanying structural assumptions through the Section 1113 process, which includes appropriate discovery requests. Bridge Associates was retained as part of an agreement with the IAM and other unions, whereby the IAM withdrew its request for appointment of a Chapter 11 trustee. Ms. Levine asserts that maintaining the confidentiality of the Bridge Report was an integral component of the agreement between the Debtors and their unions. The Court should not alter the stipulations of that negotiated agreement. The Bridge Report constitutes undiscoverable material. The Report's contents are facts or opinions held by a non-testifying expert that are immune from discovery under Rule 26(b)(4)(B) of the Federal Rules of Civil Procedure. Under this Rule, the Bridge Report becomes discoverable only if the URPBPA can demonstrate exceptional circumstances, which it cannot. Nothing prevents the URPBPA from hiring its own expert to examine the source documents and performing a similar feasibility analysis, Ms. Levine tells Judge Wedoff. The IAM will be happy to provide the URPBPA with an executive summary of the Bridge Report. Otherwise, the Motion should be denied. (2) Debtors James H.M. Sprayregen, Esq., at Kirkland & Ellis, says that the Debtors have provided enough information to the URPBPA, namely a copy of the business plan and related actuarial information. The ALPA insisted on keeping the Bridge Report confidential. Mr. Sprayregen invited the URPBPA to contact the ALPA directly. This makes the URPBPA's request premature because, as far as the Debtors know, the URPBPA has not contacted the ALPA. This indicates that the URPBPA has other options besides running to the Court. Mr. Sprayregen argues that the documents relating to the ALPA proposals bear no relationship to the URPBPA's participation in the Section 1113 process. The goal of the Section 1113 process is to foster consensual negotiations between the Debtors and the unions. If third parties are allowed to listen in, the negotiation process could be chilled. The URPBPA's only role is to ensure that its right to object to pension termination is not negatively impacted. The Bridge Report was negotiated with the explicit understanding that it would remain confidential. The Debtors agreed to provide the URPBPA with the Business Plan, which is the source document that the Bridge Report is based on. The URPBPA cannot complain about the absence of the Bridge Report when it is receiving the underlying source document. (3) AFA At the Court's urging, the Association of Flight Attendants and International Association of Machinists and Aerospace Workers withdrew their request for appointment of a Chapter 11 trustee, pursuant to a settlement agreement with the Debtors. Partially in exchange, the Debtors contracted Bridge Associates to prepare a report on the business plan. Bridge's retention letter expressly provides that all related information is confidential. Robert S. Clayman, Esq., at Guerrieri, Edmond & Clayman, in Washington, D.C., argues that the same considerations apply to the enforcement of the confidentiality agreement governing the Bridge Report that apply to the enforcement of a protective order. If the Bridge Report becomes discoverable, parties will be dissuaded from reaching similar settlements in the future. URPBPA Responds "None of the arguments advanced by United, IAM or AFA are sufficient to preclude production of [the Bridge] report," Jack J. Carriglio, Esq., at Meckler, Bulger & Tilson, asserts. There is no provision in the Bridge retention letter that addresses document disclosure through the discovery process. The URPBPA has entered into a confidentiality agreement with the Debtors, assuring that it will not disseminate the Bridge Report in a manner contrary to the agreement. Therefore, the Debtors should be compelled to provide the Report. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 70; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Cost-Savings Ratification to Cut $137 Million Annually ------------------------------------------------------------------ US Airways' approximately 5,600 airport customer service and reservations call center employees, represented by the Communications Workers of America, ratified a cost-savings agreement that will reduce US Airways' costs by approximately $137 million annually. The bankruptcy court must approve the new agreement. The agreement passed by a 60 percent margin. US Airways has approximately 3,900 airport customer service employees and approximately 1,700 employees in reservations in Pittsburgh and Winston-Salem, North Carolina. "This ratification is very important to our future success as it shows our ability to work collaboratively with our employees toward common goals and solutions. Today, we have drawn much closer to becoming a stronger, more competitive airline," said Jerrold A. Glass, US Airways senior vice president of employee relations. "I applaud our passenger service employees for making this very difficult decision and ratifying this agreement." US Airways has ratified agreements with the Air Line Pilots Association and the three units of the Transport Workers Union. A tentative agreement was reached on Dec. 16, 2004, with the Association of Flight Attendants. A ratification decision is expected on Jan. 5, 2005. Negotiations continue with the International Association of Machinists' mechanics and related, fleet service workers, and maintenance training specialists. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of: * US Airways, Inc., * Allegheny Airlines, Inc., * Piedmont Airlines, Inc., * PSA Airlines, Inc., * MidAtlantic Airways, Inc., * US Airways Leasing and Sales, Inc., * Material Services Company, Inc., and * Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq., at Arnold & Porter LLP, and Lawrence E. Rifken, Esq., and Douglas M. Foley, Esq., at McGuireWoods LLP, represent the Debtors in their restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. USGEN CORP: Sells Hydro Assets to TransCanada for US$505 Million ---------------------------------------------------------------- USGen New England, Inc., and an affiliate of TransCanada Corporation (TSX:TRP) (NYSE:TRP) announced that TransCanada will purchase hydroelectric generation assets with a total generating capacity of 567 megawatts -- MW -- for $505 million US in cash, subject to adjustment. No qualified competing bids were received by the court-ordered deadline so the auction originally scheduled for today did not take place. The purchase is subject to the sale of the 49 MW Bellows Falls hydroelectric facility to the Vermont Hydroelectric Power Authority, which will result in a $72 million US reduction in purchase price. The sale, previously announced in September 2004, is now pending a bankruptcy court hearing scheduled for Dec. 15, 2004. Other regulatory approvals and conditions also will need to be met prior to closing. The assets include generating systems on two rivers in New England: * the 484 MW Connecticut River system in New Hampshire and * Vermont and the 83 MW Deerfield River system in Massachusetts and Vermont. The systems include 13 dams with 41 hydroelectric generating units. On a ten-year average, the generating systems produced approximately 1.4 million MW-hours of electricity annually. The output is not subject to long-term contracts. The Town of Rockingham has an option agreement with USGen New England to purchase the Bellows Falls facility for $72 million US. On Dec. 7, 2004, the Town exercised the option and assigned its rights to the Vermont Hydroelectric Power Authority. Should the Bellows Falls transaction close, TransCanada's acquisition will exclude that facility and the purchase price will be reduced to US$433 million. The transaction is expected to close in the first half of 2005. TransCanada will finance the acquisition in a manner consistent with maintaining its solid financial position and credit ratings. TransCanada expects the transaction to be immediately accretive to earnings and cash flow. TransCanada is a leading North American energy company. TransCanada is focused on natural gas transmission and power services with employees who are expert in these businesses. TransCanada's network of approximately 41,000 kilometres (25,600 miles) of pipeline transports the majority of Western Canada's natural gas production to the fastest growing markets in Canada and the United States. TransCanada owns, controls or is constructing more than 4,700 megawatts of power generation - an amount of power that can meet the needs of about 4.7 million average households. The Company's common shares trade under the symbol TRP on the Toronto and New York stock exchanges. Visit TransCanada on the Internet at http://www.transcanada.com/for more information. Headquartered in Bethesda, Maryland, USGen New England, Inc., an affiliate of PG&E Generating Energy Group, LLC, owns and operates several electric generating facilities in New England and purchases and sells electricity and other energy-related products at wholesale. The Debtor filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30465). John E. Lucian, Esq., Marc E. Richards, Esq., Edward J. LoBello, Esq., and Craig A. Damast, Esq., at Blank Rome, LLP, represent the Debtor in their restructuring efforts. When it sought chapter 11 protection, the Debtor reported assets amounting to $2,337,446,332 and debts amounting to $1,249,960,731. VERTIS INC: Obtains New $200 Million Revolver with GE and BofA -------------------------------------------------------------- Vertis, Inc., a leading provider of targeted advertising, media and marketing services, has entered into a $200 million, four-year revolving credit agreement. The credit facility, led by GE Commercial Finance as Agent and Lead Arranger and Bank of America, N.A., as Documentation Agent and Joint-Lead Arranger, replaces the Company's existing credit facility scheduled to expire in December 2005. The new facility reduces borrowing costs by 75 basis points and increases Vertis' financial flexibility by eliminating leverage and interest rate coverage covenants. The new credit agreement includes a minimum EBITDA covenant. The availability is subject to the Company's level of qualified receivables, inventories and fixed assets. As a result of this financing, unamortized deferred debt costs of $1.8 million will be charged to expense in the fourth quarter. Like the facility it replaces, the new facility is secured by substantially all of the assets of Vertis, including the stock and assets of its domestic and foreign subsidiaries who are guarantors of the facility. "We are pleased with the successful closing of this new credit facility, well in advance of the expiration of the existing facility. The financial flexibility and lower interest rates are extremely valuable as we move forward to grow the business," said Dean D. Durbin, Vertis' President and CFO. "We appreciate the continued support Vertis has received in the lender community." ABOUT VERTIS Vertis is a leading provider of targeted advertising, media, and marketing services that drive consumers to marketers more effectively. Its comprehensive products and services range from consumer research, audience targeting, creative services, and workflow management to targeted advertising inserts, direct mail, interactive marketing, packaging solutions, and digital one-to-one marketing and fulfillment. Headquartered in Baltimore, Maryland, with facilities throughout the U.S. and the U.K., Vertis -- http://www.vertisinc.com-- combines best-in-class technology, creative resources and innovative production to serve the targeted marketing needs of companies worldwide. At Sept. 30, 2004, Vertis, Inc.'s balance sheet showed a $349,466,000 stockholders' deficit, compared to a $342,198,000 at Dec. 31, 2003. VICORP RESTAURANTS: Reports $700K Net Loss for 4th Quarter 2004 --------------------------------------------------------------- VICORP Restaurants, Inc., announced financial results for its fiscal fourth quarter ended October 28, 2004. Net revenues for the fourth quarter of 2004 were $115.9 million, a 0.2% increase from net revenues of $115.7 million reported in the fourth quarter of 2003. Comparable restaurant sales for the fourth quarter of 2004 declined 0.6% versus the previous year's fourth quarter. The net loss for the fourth quarter of 2004 was $700,000, which included a pre-tax charge of $3.2 million related to the settlement of litigation, versus a net loss of $0.4 million in the comparable period of 2003, which included $1.1 million of pre-tax expenses associated with the purchase of us by VI Acquisition Corp. Adjusted earnings before interest, taxes, depreciation and amortization for the fourth quarter of 2004 was $12.2 million, a 25.8% increase from the $9.7 million Adjusted EBITDA for the fourth quarter of 2003. Net revenues for the fiscal year ended October 28, 2004, were $399.7 million, an increase of 3.2% over the $387.2 million reported in the comparable period ended October 26, 2003. Comparable restaurant sales for fiscal 2004 increased 0.4% over the same period of 2003. Net income for the fiscal year ended October 28, 2004, was $7000,000, which included the pre-tax litigation settlement charge of $3.2 million and pre-tax debt extinguishment costs totaling $6.9 million, versus a net loss in the comparable period in 2003 of $1.6 million, which included $17.2 million of pre-tax debt extinguishment and transaction expenses associated with the purchase of us by VI Acquisition Corp. Adjusted EBITDA for fiscal 2004 was $42.1 million, a 6.0% increase from Adjusted EBITDA of $39.7 million for the comparable period of 2003. During the fourth quarter VICORP Restaurants, Inc., established a reserve of $3.2 million in connection with its agreement in principle to settle two previously disclosed class-action lawsuits. The proposed settlements represent the resolution of litigation proceedings that were initiated against the Company in October 2003 and May 2004 for claims arising out of the Company's alleged violation of California law with regard to rest and meal periods, bonus calculations and employee classifications. The parties in both lawsuits are in the process of finalizing the settlement, which is subject to approval of the court. Under the terms of the proposed settlements, the Company has agreed to pay up to an aggregate of $6.55 million for the alleged claims and associated legal fees. The Company's parent has filed a lawsuit seeking indemnification for all of the damages related to such litigation under the purchase agreement dated June 14, 2003, pursuant to which the Company was acquired. While the Company believes that its claims are meritorious and that it will prevail, in the event the Company does not fully prevail on its indemnification claims, management estimates that the Company's maximum exposure under the settlement agreements is the $3.2 million amount reserved. All operating divisions (company-owned restaurants, franchise operations and VICOM) contributed to the increase in Adjusted EBITDA in the fourth quarter of 2004 versus the comparable quarter of 2003, with the company-owned restaurants contributing most significantly to the improvement. All company-owned restaurant divisions showed quarter-over-quarter improvement in both Adjusted EBITDA and Adjusted EBITDA margin, however, the Village Inn division was the predominant driver of the quarter's increases. Company restaurant operating margins improved due to lower restaurant operating expenses and lower food cost, both as a percentage of restaurant sales. The improvement in percentage restaurant operating expenses was driven by decreased advertising spending as well as by lower utility costs throughout the quarter. In addition, restaurant-level commodity cost pressures moderated during the fourth quarter, leading to a 0.6% improvement in percentage food cost. Debra Koenig, CEO, commented: "Our operating results were ahead of our expectations for the quarter. We are pleased with the strength of our Village Inn brand, which had positive comparable restaurant sales of 1.7% in the fourth quarter of 2004 versus the comparable quarter of 2003. The Bakers Square same store sales were disappointing, declining by 2.3%; however, the decline was an improvement sequentially over the third quarter comparable sales performance. We are pleased to report that the first phase of our broad-based Bakers Square brand re-positioning review has been completed. In fiscal 2005, we expect to refine the changes to the brand and to initiate selective market trials. During the quarter, we opened four new restaurants, bringing the total of new restaurants opened in fiscal 2004 to seven, and closed four under- performing locations whose leases had expired. Consistent with our stated long-term strategy, we plan to open 23 to 27 new restaurants throughout fiscal 2005, predominantly under the Village Inn brand and exclusively in our existing markets." Factors Affecting Comparability and Non-GAAP Financial Information On June 13, 2003, Midway Investors Holdings, the previous parent company of VICORP, was purchased by VI Acquisition Corp., a newly created holding company. The application of purchase accounting rules required us to re-value our assets and liabilities at the acquisition date, which resulted in different accounting bases being applied in different periods. Because of this change of accounting bases, we do not show combined results for the year ended October 26, 2003, in our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. However, we have included additional non-GAAP schedules that combine the information prepared on different bases to provide combined information for the year ended October 26, 2003. Such combined information is not necessarily comparable to the information presented for year ended October 28, 2004. Our fiscal year, which historically ended on the last Sunday in October, is comprised of 52 or 53 weeks divided into four fiscal quarters of 12 or 13, 12, 12, and 16 weeks. Beginning January 22, 2004, we changed our fiscal year so that it ends on the Thursday nearest to October 31 of each year. This increased the first quarter in fiscal 2004 by an extra four days (88 days in the first quarter of fiscal 2004 versus 84 days in the first fiscal quarter of 2003). This change was made to facilitate restaurant operations by moving the end of our fiscal periods and weekly reporting and payroll periods away from weekends when our restaurants are busier. We believe that, in addition to other financial measures, earnings before interest, taxes, depreciation and amortization, "EBITDA" and "Adjusted EBITDA" are appropriate indicators to assist in the evaluation of our operating performance because they provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital needs and are used by securities analysts and others in evaluating companies in our industry. However, "EBITDA" and "Adjusted EBITDA" are not prescribed terms under accounting principles generally accepted in the United States, do not directly correlate to cash provided by or used in operating activities and should not be considered in isolation, nor as an alternative to more meaningful measures of performance determined in accordance with accounting principles generally accepted in the United States. Because "EBITDA" and "Adjusted EBITDA" are not calculated in the same manner by all companies, they may not be comparable to other similarly titled measures of other companies. Refer to the accompanying Combined Consolidated Statements of Operations for a reconciliation of these non-GAAP financial performance measures to the GAAP measures and other information. About VICORP Restaurants, Inc. Headquartered in Denver, Colorado, VICORP Restaurants, Inc., operates family-dining restaurants under two proven and well- recognized brands, Village Inn and Bakers Square. VICORP, founded in 1958, has 377 restaurants in 25 states, consisting of 274 company-operated restaurants and 103 franchised restaurants. Village Inn is known for serving fresh breakfast items throughout the day, and we have also successfully leveraged its strong breakfast heritage to offer traditional American fare for lunch and dinner. Bakers Square offers delicious food for breakfast, lunch and dinner complimented by its signature pies, including dozens of varieties of multi-layer specialty pies made from premium ingredients. * * * As previously reported in the Troubled Company Reporter on, Mar. 31, 2004, Standard & Poor's Ratings Services assigned its 'B' rating to family dining restaurant operator VICORP Restaurant Inc.'s proposed $150 million senior unsecured note offering due 2011. The notes will be issued under Rule 144A with registration rights. The proceeds will be used to repay $131 million of existing debt and for a $25 million dividend to equity holders. Standard & Poor's also assigned its 'B+' corporate credit rating to the company. The outlook is stable. The notes are rated one notch below the corporate credit rating because of the significant priority debt ahead of the notes. VIRGINIA EQUINE: Moody's Affirms B2 Rating on $15.7M Bonds ---------------------------------------------------------- Moody's Investors Service affirmed the B2 rating on the Virginia Equine Center Foundation's $15.7 million Series 2001 bonds issued through the Rockbridge County Industrial Development Authority. The outlook for the rating remains negative, reflecting the Center's thin balance sheet and operations, which do not cover projected peak debt service. Credit strengths are: (1) growth in earned revenue from horse shows, concerts and other events, (2) recent enactment of a 2% lodging tax to benefit the Center, which management believes could generate $300K annually, (3) recent announcement of a $1 million federal grant to benefit the Center, although it is unclear when the Center will receive the funds, or whether the grant will have any specific restrictions on use. Credit challenges are: (1) earned revenue from horse shows and events do not cover debt service; (2) state appropriations do not cover increase in debt service caused by the issuance of the 2001 bonds; (3) expanding fundraising to establish reserves and cash flow to help the Center meet its debt service obligations; (4) Bullet principal payment of $1.5 million comes due in July 2005. Recent Developments/Results The Center closed out FY2004 with a deficit of -9% or about $400K by Moody's measures, reflecting the increase in debt service after the 2001 bond issue and the non-appropriation of state funds to support the increase in debt service. For FY2005, the Center is projecting growth in its earned revenue from horse shows and events, and the receipt of about $890K in state funds. While this state appropriation will still not cover full debt service on the Series 2001 bonds, it is still a favorable result, given that last year the state proposed a schedule of declining annual support to the Center. The next debt service payment of $524K in interest is scheduled for January 15, 2005. The Center expects to make this payment through a combination of state appropriations ($154K), transfers of cash on hand and pledge payments on gifts from the Center's affiliated private foundation ($161K), earnings on the debt service reserve fund ($134K), and proceeds from a recently enacted county and city lodging tax ($75K). Management believes that the proceeds of the lodging tax may come in higher, which could reduce the use of the other funds. The Center's ability to pay or refinance the bullet principal maturity of $1.3 million in July 2005 (FY06) remains somewhat uncertain, although the Center is exploring several options. These options including refinancing with a local bank (management reports the Center has received a commitment letter), applying proceeds of a recently announced $1 million federal grant to the payment, and another private source of support, among other possible options. Management indicates that the debt service reserve fund for the bonds remains fully funded at slightly under $1.47 million. Outlook The Center's rating outlook is negative. Moody's will review the rating again by early Spring 2005, in order to assess the Center's ability to meet the debt service payments due in July. What Could Change the Rating - UP A substantial increase in financial resources and revenue to support debt service are factors that could contribute to improvement in credit quality. What Could Change the Rating - DOWN An inability to identify revenue streams to make debt service payments due in July 2005 and beyond would likely lead to a rating downgrade. Key Data and Ratios FY 2004 Financial Information Center and Foundation Expendable Resources to Pro Forma Debt: 0.09 times Expendable Resources to Operations: 0.30 times Operating Margin: -9.3% VIVENDI UNIVERSAL: Plans to Redeem Outstanding High Yield Notes --------------------------------------------------------------- Vivendi Universal (Paris Bourse: EX FP; NYSE: V) intends to redeem all of its outstanding high yield notes totaling approximately EUR400 million in principal amount. Redemption is expected to occur on Jan. 21, 2005. Vivendi Universal will send a formal Notice of Redemption to all holders of the notes to be redeemed setting forth the details of the proposed redemption. After the sale of 15% of Veolia Environnement, this transaction demonstrates Vivendi Universal's ongoing commitment towards the efficient use of funds. This transaction follows and completes the June 2004 purchase of high yield notes. Following the completion of this transaction, none of the high yield notes issued by Vivendi Universal will remain outstanding. About the Company Headquartered in Los Angeles, Vivendi Universal Games is a leading global developer, publisher and distributor of multi- platform interactive entertainment. Its development studios and publishing labels include Blizzard Entertainment, Sierra Entertainment, Fox Interactive and Massive Entertainment. VU Games' library of over 700 titles features multi-million unit selling properties such as Warcraft, StarCraft and Diablo from Blizzard; Crash Bandicoot, Spyro The Dragon, Ground Control, Tribes and Leisure Suit Larry. * * * As reported in the Troubled Company Reporter on Oct. 28, 2004, Standard & Poor's Ratings Services withdrew its 'BB+' corporate credit rating on U.S.-based media company Vivendi Universal Entertainment LLLP and its 'BBB-' senior secured bank loan rating following the repayment of the rated bank debt with unrated, unsecured bank loans. The ratings are removed from CreditWatch, where they were placed September 3, 2003. WEIRTON STEEL: Trustee Wants to Terminate Sale Agreement with DNI ----------------------------------------------------------------- On June 22, 2004, the United States Bankruptcy Court for the Northern District of West Virginia approved an asset purchase agreement between Weirton Steel Corporation and D.N.I. International, Inc. DNI agreed to purchase Weirton's Can Line, Machine Shop, Heat Treat and other assets for $510,000. Pursuant to the Purchase Agreement, Weirton was required to disconnect the purchased assets from air, water, gas and electrical sources prior to removal by DNI. The Agreement also provided that DNI will: -- close on the sale on the 10th day after the entry of the Sale Order; -- remove all of the assets subject to the Agreement, within 120 days after entry of the DNI Sale Order; and -- issue an irrevocable and unconditional letter of credit to Weirton in the amount of the purchase price to serve as surety for the purchase price. According to Mark E. Freedlander, Esq., at McGuireWoods, LLP, in Pittsburgh, Pennsylvania, despite repeated demands by Weirton and subsequently by the Weirton Steel Corporation Liquidating Trustee, DNI failed or refused to issue the letter of credit and close on the sale transaction. The Liquidating Trustee relates that DNI removed and sold certain of the assets subject to the Agreement without remitting its proceeds to Weirton or the Liquidating Trustee, thus, constituting conversion. Mr. Freedlander tells the Court that Weirton and the Liquidating Trustee have incurred significant fees of legal counsel and engineers with respect to the DNI sale as a result of DNI's failure to close the Agreement. The Liquidating Trustee is in the final stages of resolving and making payment in full to allowed administrative claims, priority claims and other claims. The Liquidating Trustee expects to make distributions to allowed general unsecured claims of at least 4%. DNI's failure to close on the Agreement and the Liquidating Trustee's corresponding inability to mitigate damages and sell the assets to a third party may significantly impact distributions and the timing of the distributions to allowed general unsecured claims. The Liquidating Trustee believes that parties other than DNI may be interested in acquiring the assets subject to the Agreement and the DNI Sale Order. Accordingly, the Liquidating Trustee asks the Court to terminate the Asset Purchase Agreement with DNI effective immediately. The Liquidating Trustee reserves all rights to subsequently seek damages from DNI. Headquartered in Weirton, West Virginia, Weirton Steel Corporation was a major integrated producer of flat rolled carbon steel with principal product lines consisting of tin mill products and sheet products. The company was the second largest domestic producer of tin mill products with approximately 25% of the domestic market share. The Company filed for chapter 11 protection on May 19, 2003 (Bankr. N.D. W. Va. Case No. 03-01802). Judge L. Edward Friend, II administers the Debtors cases. Robert G. Sable, Esq., Mark E. Freedlander, Esq., David I. Swan, Esq., James H. Joseph, Esq., at McGuireWoods LLP represent the Debtors in their liquidation. Weirton sold substantially all of its assets to Wilbur Ross' International Steel Group. Weirton's confirmed Plan of Liquidation became effective on Sept. 8, 2004. (Weirton Bankruptcy News, Issue No. 39; Bankruptcy Creditors' Service, Inc., 215/945-7000) WESCO DISTRIBUTION: Moody's Lifts Senior Unsecured Rating to B1 --------------------------------------------------------------- Moody's Investors Service raised the rating of WESCO Distribution, Inc., as follows; Ratings Upgraded: * Senior implied upgraded to Ba3 from B1 * Senior unsecured issuer rating upgraded to B1 from B2 * US$300 million, 9.125% guaranteed senior subordinated notes, due June 1, 2008 upgraded to B2 from B3 * US$100 million, 9.125% guaranteed senior subordinated notes, due June 1, 2008 upgraded to B2 from B3 The outlook is stable. Moody's rating action was prompted by WESCO's improved credit statistics, which are a result of lower debt levels and improved operating performance, and the expectation that the company will reduce debt further over near term. The ratings also reflect the company's geographic reach, product breadth, minimal capital requirements, and relatively extensive base of both customers and suppliers. However, the ratings incorporate the potential for acquisitions given the fragmented nature of the industry in which WESCO operates, relatively high level of supplier concentration, significant amount of intangibles, and the short term of its accounts receivables securitization facility. WESCO's recent operating performance has progressively improved due to continued growth in integrated supply and national accounts, a pick-up in the day-to-day MRO business (stock fill- in), and the more recent gains in the small to medium sized project business. Although the company has not seen a meaningful improvement in the large more complex longer lead-time projects, the company believes improvement may begin by mid 2005. Margins have also improved as a result of a continued focus on cost reductions, in part through the company's LEAN initiatives, and the ability to pass through higher material prices (copper, steel). A further strengthening in credit metrics will come from additional debt reductions that will be funded from a recently completed equity offering. Proceeds of approximately $100 million received from the sale of 4 million shares of WESCO common equity will be used to tender for an equal amount of the company's 9.125% notes in the first quarter of 2005. WESCO's equity investors, Cypress Partners, and management will also being selling secondary shares, which will reduce Cypress Partners aggregate ownership interest to 31% from 46%. On September 30, 2004, total debt, adjusted for the A/R securitization, was approximately $728 million, down from over $900 million in the same period in 2001, with LTM EBITDA of approximately $156 million. As a result, leverage improved on an adjusted debt to LTM EBITDA basis to approximately 4.7x from about 6.4x for the same prior year period, while coverage increased to over 3.5x. The improvement was largely driven by stronger operating earnings, despite an increase in adjusted debt levels of about $100 million related to higher A/R securitization for increased working capital needs. After incorporating the additional debt reduction from the proceeds of the equity offering, leverage should fall below 4.0x on a pro forma basis. Initially the proceeds from the equity offering will be used to reduce the outstanding balance on the A/R facility with the intention of repurchasing the 9.125% notes in January 2005. Although this will increase near-term availability under the A/R facility, WESCO's primary source of liquidity going forward will remain the $200 million revolving credit facility (not rated). As of September 30, 2004, there were no borrowings under the facility and minimal outstanding letters of credit. There are no financial covenants until availability falls below $50 million at which point a fixed charge covenant would be tested. However, with the $190 million, 364 day A/R securitization facility fully drawn and expiring in October 2005, liquidity could be a concern if WESCO were unable to renew the facility and the amount outstanding at maturity of the A/R facility exceeded the availability under the bank revolver. These liquidity arrangements are somewhat aggressive and may preclude a further improvement in ratings. Despite having a reasonable position for various products compared to its peers, the industries in which WESCO operates continues to be highly fragmented. In 2003, the four national distributors in the electrical distribution sector, including WESCO, accounted for only 17% of total industry sales. As a result of such fragmentation, consolidation has been a natural avenue of growth for many companies such as WESCO, which itself completed 25 acquisitions from 1995 to 2001. In aggregate, these acquisitions accounted for roughly $1.3 billion of 2003 total revenues and also generated approximately $400 million of balance sheet intangibles resulting in negative tangible book equity. The last acquisition for WESCO occurred in 2001, and although the company expects to resume acquisitions in the future, Moody's expects that future acquisitions will be smaller tuck-ins and will not threaten ratings. The stable outlook reflects Moody's expectation that WESCO's operating performance will continue to improve resulting in a continued strengthening of credit metrics, with sustainable leverage below 4.0x, coverage exceeding 3.5x, and retained cash flow (before working capital) to total adjusted debt of at least 10% to 15%. The outlook also incorporates Moody's view that the company will be successful in renewing its A/R securitization facility or will improve its liquidity through longer-term financings. Factors that would negatively impact the ratings and/or outlook would be deterioration in credit statistics or liquidity due to acquisitions, competitive pressures, an inability to renew its A/R facility or pass through price increases, or the loss of a significant customer. WESCO Distribution, Inc., headquartered in Pittsburgh, Pennsylvania, is a leading North American provider of electrical construction products and electrical and industrial maintenance, repair and operating supplies. WESTAR ENERGY: Debt Reduction Plan Cues Fitch to Revise Outlook --------------------------------------------------------------- Fitch Ratings has revised the Rating Outlook for Westar Energy -- WE -- and its wholly-owned electric utility subsidiary, Kansas Gas and Electric Co. -- KGE, to Positive from Stable. Fitch has also affirmed WE's and KGE's: Westar Energy: -- Senior secured debt 'BBB-' -- Senior unsecured debt 'BB+' -- Preferred stock 'BB-' Kansas Gas and Electric Co.: -- Senior secured 'BBB-'. The ratings and Outlook revision to Positive recognize WE's improved financial and business risk profile as a result of the completion of management's debt reduction plan and the expectation that the utility's credit metrics will continue to strengthen in 2005 and beyond. The Positive Outlook assumes the utility's rates will not be meaningfully reduced in its upcoming rate case, given the company's modest returns on equity and relatively weak financial metrics, and the continuation of a reasonable regulatory environment in the long-term. The upcoming general rate case filing was stipulated in a Kansas Corporation Commission -- KCC -- approved settlement agreement that adopted WE's debt restructuring plan. Under the debt reduction plan, which was approved by the KCC, WE sold its ownership interests in its natural gas and monitored alarm businesses in order to focus on its core electric utility operation. The proceeds from the transactions and a common equity offering completed earlier this year were used to reduce debt. Importantly, current management, which took the helm of the company in November 2002, has normalized its relationship with state regulators, while reducing consolidated balance sheet debt. Debt on WE's balance sheet declined to $1.7 billion at September 2004 from more than $3 billion at December 2002, exclusive of non- recourse debt of $570 million related to its monitored alarm business. The primary concern for WE investors in the near- to intermediate- term is the potential for a rate cut in the utility's required 2005 KCC general rate case. The rate case is to be filed in May 2005, based on a calendar 2004 test year. A final KCC order is anticipated by the end of 2005 to be effective Jan. 1, 2006. * BOND PRICING: For the week of December 20 - December 24, 2004 -------------------------------------------------------------- Issuer Coupon Maturity Price ------ ------ -------- ----- Adelphia Comm. 3.250% 05/01/21 22 Adelphia Comm. 6.000% 02/15/06 21 AMR Corp. 4.500% 02/15/24 75 AMR Corp. 10.200% 03/15/20 71 Applied Extrusion 10.750% 07/01/11 57 Armstrong World 6.350% 08/15/03 73 Bank New England 8.750% 04/01/99 18 Burlington Northern 3.200% 01/01/45 59 Calpine Corp. 7.750% 04/15/09 74 Calpine Corp. 8.500% 02/15/11 75 Calpine Corp. 8.625% 08/15/10 75 Comcast Corp. 2.000% 10/15/29 45 Delta Air Lines 7.800% 11/18/05 63 Delta Air Lines 7.900% 12/15/09 62 Delta Air Lines 8.000% 06/03/23 60 Delta Air Lines 8.300% 12/15/29 49 Delta Air Lines 9.000% 05/15/16 53 Delta Air Lines 9.250% 03/15/22 50 Delta Air Lines 9.750% 05/15/21 51 Delta Air Lines 10.000% 08/15/08 74 Delta Air Lines 10.125% 05/15/10 61 Delta Air Lines 10.375% 02/01/11 61 Dobson Comm. Corp. 8.875% 10/01/13 71 Falcon Products 11.375% 06/15/09 43 Federal-Mogul Co. 7.500% 01/15/09 32 Finova Group 7.500% 11/15/09 49 Iridium LLC/CAP 14.000% 07/15/05 19 Inland Fiber 9.625% 11/15/07 41 Kaiser Aluminum & Chem. 12.750% 02/01/03 20 Lehmann Bros. Hldg. 6.000% 05/25/05 64 Level 3 Comm. Inc. 2.875% 07/15/10 71 Level 3 Comm. Inc. 6.000% 09/15/09 61 Level 3 Comm. Inc. 6.000% 03/15/10 60 Liberty Media 3.750% 02/15/30 68 Liberty Media 4.000% 11/15/29 73 Mirant Corp. 2.500% 06/15/21 71 Mirant Corp. 5.750% 07/15/07 71 Mississippi Chem. 7.250% 11/15/17 75 Northern Pacific Railway 3.000% 01/01/47 57 NRG Energy Inc 6.500% 05/16/06 0 Nutritional Src. 10.125% 08/01/09 66 Oglebay Norton 10.000% 02/01/09 75 O'Sullivan Ind. 13.375% 10/15/09 40 Pegasus Satellite 12.375% 08/01/06 65 Pegasus Satellite 13.500% 03/01/07 1 Primus Telecom 3.750% 09/15/10 74 RCN Corp. 10.000% 10/15/07 59 RCN Corp. 10.125% 01/15/10 61 RCN Corp. 11.125% 10/15/07 59 Reliance Group Holdings 9.000% 11/15/00 27 RJ Tower Corp. 12.000% 06/01/13 74 Salton Inc 12.250% 04/15/08 75 Syratech Corp. 11.000% 04/15/07 50 United Air Lines 9.125% 01/15/12 8 United Air Lines 10.670% 05/01/04 8 Univ. Health Services 0.426% 06/23/20 54 Westpoint Stevens 7.875% 06/15/08 0 Zurich Reinsurance 7.125% 10/15/23 62 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. 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All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo and Peter A. Chapman, Editors. Copyright 2004. All rights reserved. ISSN: 1520-9474. 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